Retirement Investments: A Justified Extravagance
Retirement is a time to enjoy the fruits of one's labour, but it's essential to maintain financial security. A prudent approach balances responsible budgeting for essential expenses with a modest allowance for non-essential spending that enhances retirement lifestyle, without risking running out of money.
First and foremost, it's crucial to prioritize essential needs. Covering all basics such as housing, healthcare, food, insurance, and debt payments ensures financial stability. According to recent statistics, retirees aged 65 and older spend about $4,938 annually on food, or about 25% of their monthly expenses.
Once essential needs are covered, it's possible to budget for enjoyment within means. Even small amounts for discretionary purchases, like dining out or pursuing hobbies, can improve happiness if they fit within your budget without depleting savings or jeopardizing essential needs. In fact, hobbies that cost little to nothing, like birdwatching or planting a garden, are worth pursuing, as they can contribute to a person's level of satisfaction with life.
It's important to avoid reckless spending. Splurging occasionally on meaningful experiences or comforts is beneficial, but avoid spending on non-essential items you will not use or that are outside your financial capability. The "4% rule" suggests withdrawing 4% of your savings annually, adjusted for inflation, to avoid exhausting your nest egg. Discretionary spending should be included within this withdrawal amount.
Planning around your lifestyle and priorities is also key. Consider your retiree lifestyle goals and expected costs. If you plan luxury travel or home renovations for comfort, these should be funded only after securing financial essentials. Approximately 67% of American adults report having multiple hobbies, and 85% of American adults consider having hobbies to be important in their lives.
Maintaining a flexible mindset is also crucial. Regularly review your financial situation and adjust discretionary spending if unexpected expenses arise, to maintain long-term security.
In conclusion, it's worth spending money on experiences as happiness seems to follow. A small surplus in retirement can fund small joys to boost enjoyment. By prioritizing healthy eating, retirees can save significantly on medical expenses over time. And it's worth treating yourself occasionally without the guilt, as long as bills are paid and savings are maintained. It's also worth bequeathing your money to your heirs as it is deeply fulfilling. The IRS annual gift tax exclusion is $19,000 per recipient in 2025, and married couples can gift up to $38,000 per recipient by electing to split gifts. Upgrading home appliances, buying new backyard furniture, or swapping out old carpet can be worth the cost, provided they do not compromise financial security.
To ensure a comfortable retirement, it's necessary to allocate a portion of your personal-finance for non-essential spending, such as hobbies or experiences. However, it's crucial to practice restraint and prioritize essential expenses like housing, healthcare, food, insurance, and debt payments, maintaining a wallet balance that supports both necessities and small joys without jeopardizing financial security.
