It's Your Time—How to Shed the Worry and Guilt in Retirement

Congratulations—after decades of working, paying off the mortgage and the kids' educations and, yes, squirreling away money for your retirement, you've reached that fateful day. It's time to enjoy the fruits of your labor. But if you're feeling like you can't relax due to worry, guilt, or uncertainty about your retirement years, you're not alone.

"It’s difficult to transition from saving to spending; from making a paycheck to taking a paycheck from your savings," says Dara Luber, Senior Manager, Retirement, at TD Ameritrade. "You want to enjoy all the things you couldn’t do while you were working but also make sure you aren’t spending too much."

After all, you've spent so many years building that nest egg, it may be unsettling to draw it down, even a little bit. Where do you draw the line between enjoyment and overindulgence? Is there such thing as a "reasonable" amount to spend on yourself? And what about those unexpected expenses that may pop up?

The good news is, these mixed emotions are quite natural. Frugality and sensibility (and a lot of hard work) are part of what got you to this point in your life. So maybe it's time to channel those attributes into a retirement plan that can give you the peace of mind needed to enjoy your later years.

A good first step is ensuring you have a solid knowledge of your potential sources of income, the cash outflow for necessary expenses and what you have available for discretionary spending. Once you feel that you’re in a good place financially, a next step might be for you to take an organized approach on prioritizing your spending.

Needs, Wants and Wishes

In order to shed the retirement security worry, it's important to understand which expenses are mandatory and which are discretionary, and separate them accordingly. Or, as Luber puts it, separate your retirement spending into "needs, wants and wishes. Make sure you cover your needs first, and then the rest can be for wants and wishes," she says.  

So let's take a look at those mandatory items, or "needs." Calculating your wage replacement ratio, or the percentage of pre-retirement income you'll need in retirement, can be "a good starting point," says Matthew Sadowsky, CRPC^®, RICP^®, Director of Retirement and Annuities at TD Ameritrade. Many mandatory expenses, including transportation, clothing, mortgage and utility costs (should you choose to downsize), tend to decrease when you retire. Perhaps the children are grown up and living on their own. "Plus, you're no longer paying FICA (payroll taxes), and you may not be paying into a company 401(k) plan," he says. Sadowsky suggests starting out by trying to keep your expenses at 80 percent to 85 percent of your salary, and adjust from there.

On the flip side, not all costs decrease as you age. Medical costs, for example, tend to increase over the years. And if you require assisted living, these costs can rise significantly. Consider options such as long-term care insurance, as it’s possible this could become a “need” later in life.  

Another important part of the financial equation in retirement is income. Social Security, pensions and annuities can provide a steady stream of income, and your 401(k) and IRA accounts will have required minimum distributions (RMDs) once you turn 70 ½. When planning for your retirement needs, make sure to consider how these income streams will affect your financial security.

Once you’ve determined the amount of money you need to comfortably retire, it’s time to consider the "discretionary" portion of your nest egg—money that you could spend without worry or guilt. 

Prioritize the Discretionary

So, where do you start? Well, what's important to you—is it travel? Membership in a country club or social club? Are you into the arts? Is there a luxury vehicle you've had your eye on but couldn't justify the spend? If you've cleared your mandatory spending hurdle and have the "fun money" available, why not indulge? But you don't need to be the proverbial kid in the candy store; feel free to ease into it. Make a list of which items are most important to you, and start at the top.

One big question mark in the minds of many retirees is deciding how much they would like to leave for their children. If this describes you, take note: a 2015 study by Saga Personal Finance showed that upwards of 80 percent of parents would like to leave something for their children. But the study also polled adult children and found that most, about 75 percent, would rather see their parents spend their money on themselves, enjoying retirement. So if you should choose to put "inheritance" lower in the priority queue, you may do so guilt-free.

"Spending" is not "Wasting"

A final hurdle over which you may struggle is convincing yourself that spending your savings is not "wasting" it. And this may be difficult, especially if you've attributed your current comfort to decades of delayed gratification, sacrifice and maximizing value in your spending. But many experts agree that pursuing a certain joie de vivre can help you live a happier, healthier, and even longer, life.

If you've saved money for your retirement, and you've taken reasonable steps to secure your financial future, you're likely to carry that same financial discipline and focus into your retirement; so, relax and enjoy the luxuries that retirement has to offer. It’s time to knock down the walls of worry and guilt, and start enjoying yourself. Your future self may thank you for it.