This week’s Money Wisdom Question Series tackles a crucial topic for anyone approaching retirement: What’s the difference between smart spending and not spending? Heath Grossman, CFP® breaks down these concepts to help you navigate your financial future.

Smart Spending Defined

Smart spending involves more than just cutting costs; it’s about strategically managing your finances to sustain and even enhance your lifestyle in retirement. A key aspect of smart spending is creating a comprehensive retirement income plan. This plan should provide a clear understanding of your expenses and help you enter your retirement years with confidence.

Many clients want to maintain their current lifestyle in retirement but often lack a concrete definition of what that lifestyle entails in terms of expenses. While budgeting may not be the most exciting task, it’s crucial for ensuring you can enjoy your retirement years. Start by understanding your current and future expenses. Do you still have a mortgage? What hobbies or activities do you plan to pursue? Whether it’s playing golf, volunteering, traveling, or escaping to a warmer climate during the winter, knowing the costs associated with these activities is essential.

Smart spending means having a well-defined retirement income plan, which in turn gives you the confidence to live your desired lifestyle without financial anxiety.

The Pitfalls of Not Spending

On the flip side, not spending—or more accurately, being afraid to spend—can significantly impact your quality of life in retirement. Entering retirement without a clear understanding of your expenses and a solid financial plan can lead to fear and uncertainty. This fear often causes individuals to limit their spending and, consequently, their lifestyle.

Imagine working hard for 35-40 years, only to retire and feel too hesitant to enjoy the fruits of your labor. Many people find themselves in this situation because they haven’t done the proper planning. They end up restricting their activities and experiences due to financial uncertainty.

This scenario highlights the importance of having a retirement income plan. With a well-thought-out plan, you can confidently spend money on the things that bring you joy and fulfillment in retirement, knowing that you have accounted for your expenses.

Smart Spending and Income Planning for a Fear-Free Future

Smart spending empowers you to live your best life in retirement, while a lack of planning can lead to unnecessary fear and lifestyle limitations. The most important step you can take is to create a detailed retirement income plan with your financial advisor, ensuring that you have a clear understanding of your expenses and the confidence to enjoy your retirement fully.