Three behavioural factors that can affect retirement spending – GCR Financial
You've worked hard to build your retirement nest egg and now the time has come or is approaching for you to begin the “decumulation phase” — taking withdrawals in retirement to live off your accumulated assets.
If so, you're not alone. You may find yourself asking, “Did I save enough to last throughout my retirement? Can I afford that family vacation or investment property? Will I have enough to cover health and aged care costs?”. While not everyone is in the fortunate position to retire comfortably, these real concerns can make it uncomfortable for even the most financially secure investors to enjoy spending their money. So what's really holding back prepared retirees from enjoying the fruits of their labour?
The Retirement Income Review found that underspending of superannuation balances is common amongst retired Australians, and is at least in part explained by investors being happy to spend investment earnings – dividends and interest – but resist drawing down the “capital” of the super account. Transitioning to the decumulation phase can be a tricky time, even if you're in a position where you can afford to spend more than you are. To assist with the shift from a saving to a spending mindset, it may be helpful to first understand your concerns. Questions to ask yourself may include: “Why did you save for retirement in the first place and what do you truly value in life?” or “How will you feel in the future if you don't live in the moment or enjoy spending what you can afford to now?”. When the idea of spending induces anxiety, focusing on how you'll feel later may make your decision to go on that family trip, for example, a little easier. This is especially true if building lasting family memories in your retirement is one of the reasons you saved so hard in the first place. Consulting a trusted financial adviser can be great in times like these, as they can offer customised solutions to meet your needs.
Spending from what seems to be a fixed pool of non-replenishing resources can elicit feelings of stress and make you worry about “opportunity costs”.
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