Indulging in Extravagance During Retirement is Entirely Justified
Retirement is a time to enjoy the fruits of your labour, but it's essential to maintain financial security. Here's a guide on how to budget for splurging during retirement while ensuring financial stability.
Start with a Solid Foundation
Before considering splurging, it's crucial to cover essential expenses. This includes housing, utilities, food, healthcare, insurance, and maintaining a healthy savings and investment contribution. These measures guard against market fluctuations and inflation.
Allocate a Reasonable Portion for Discretionary Spending
Discretionary spending, including splurging, can constitute about 10-20% of your budget. Early retirees often allocate around this percentage for activities like travel and dining out, while preserving long-term savings.
Assess Your Retirement Portfolio and Spending Goals
Honestly assess your retirement portfolio and spending goals. Use tools like the 4% withdrawal rule on your portfolio to estimate sustainable income and create an itemized budget separating essentials from discretionary treats.
Create a "Permission to Spend" Budget
Designate a line item specifically for splurges (trips, hobbies, gifts) so you can enjoy these expenses guilt-free without jeopardizing financial security.
Avoid Overly Strict Frugality
While financial caution is crucial, it's also important to allow some splurging to enhance happiness and reward your hard work, provided it fits within your overall budget and does not endanger your savings.
Practical Examples
If your essential yearly expenses total $60,000, and you anticipate around $80,000 total income in retirement, budgeting roughly $8,000 to $16,000 annually (10-20%) for pleasurable splurging is reasonable.
Enjoying Low-Cost Hobbies
Hobbies that cost little to nothing, like birdwatching, gardening, or attending car shows, can bring pleasure in retirement.
Splurging on Big Tickets Items
Splurging on travel, a dream car, or a vacation can be rewarding during retirement, as long as bills are paid, an emergency fund is maintained, and savings are not compromised.
Gifting to Loved Ones
Gifting money or assets to your kids can be deeply fulfilling. Approximately 67% of American adults report having multiple hobbies. Married couples can gift up to $38,000 per recipient by electing to split gifts. The IRS annual gift tax exclusion for 2025 is $19,000 per recipient.
The Importance of Hobbies
Pursuing interests is directly connected to a person's level of satisfaction with life. 85% of American adults consider having hobbies to be important in their lives.
Avoiding a Scrooge Mindset
Avoid a Scrooge mindset and budget for small joys to savor the rewards of your hard work in retirement. A small surplus can fund a dinner out to boost retirement enjoyment.
Regular Reviews and Adjustments
Regularly review your finances and adjust your splurge budget based on market conditions and personal priorities to maintain this balance.
Maintaining a healthy savings and investment contribution forms part of the essential expenses that guard against market fluctuations and inflation in retirement.
Discretionary spending, which includes splurging on activities like travel and dining out, can constitute around 10-20% of your retirement budget, while preserving long-term savings.
