3 factors affecting retirement spending

3 factors affecting retirement spending

3 Scarcity and opportunity costs

Spending from what seems to be a fixed pool of nonreplenishing resources can elicit feelings of stress and make you worry about “opportunity costs”–other ways you could be using your money or the trade-off of spending those resources today. It’s when you find yourself saying, If I spend $10,000 on this, I won’t have it to spend on something else I might want or need down the line.”

Naturally, you’d expect this to be more of a concern for investors with insufficient savings. But as mentioned above, farsighted investors with sufficient funds can be impacted too, as their natural tendency is to focus on the future and exercise too much self-control.

Some of my clients who grew up during the Great Depression know what it’s like to have an uncertain future or worry about where their next meal will come from. Their experiences have reinforced the value of the dollar and led them to work hard and make sacrifices to build a secure retirement. They grew up living very frugally and some feel they don’t need much beyond the necessities. As a result, they sometimes find it difficult to indulge. For example, one of my client’s wanted to take her family on vacation to build memories but was afraid she might need the money for future health care costs.

We overcame these concerns by employing some of the strategies mentioned above. We revisited why she invested in the first place, discussed how she might feel later if she didn’t take the trip, and reviewed the impact to her financial plan—taking 10,000 market scenarios into account. At the end of the day, she just needed to be reminded of her goals and to find peace of mind by seeing the bottom line—whether she could afford to take this trip without jeopardizing her other long-term goals.

Being focused on the long term and taking a disciplined approach to investing are part of our core investing principles. But if you’re in a good financial position, there comes a time when it’s okay to live out the retirement you planned for.

Memories are priceless. That’s why one of the most rewarding parts of my job is watching my clients gain the clarity they need to take that dream vacation or pursue another retirement goal.

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3 factors affecting retirement spending

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