When does saving stop making sense?

Retirees who are used to building their nest eggs may be overlooking a few important things

When does saving stop making sense?
To encourage retirement saving, financial advisors often say “pay yourself first.” For those still working, that means being conservative and setting money aside for a rainy day. However, some people may have to follow a different approach.

“[T]here is another group of people who should be told the complete opposite,” said Ted Rechtshaffen, president and wealth advisor at TriDelta Financial, in a piece for the Financial Post.  “Spend more. Have more fun. Give more away.”

According to Rechtshaffen, many clients at his firm have been so successful at saving that it gives them a sense of control and pride. But at some point, unless their goal is to leave a large estate, they’ll get little to no benefit from adding to their wealth.

He added that financial plans that focus on setting aside income tend to overlook several factors. First, real estate can be a useful retirement asset. “[T]he home will very likely be sold at some point and turned into cash, and even until that point, a home equity line of credit can be used,” he said.

Second, many people in their 60’s can still expect some form of inheritance to add to their future financial assets. Since death and inheritances are an uncomfortable topic of conversation among many Canadian families, they tend to get dismissed or significantly underestimated as a possible asset in retirement.

Third, Rechtshaffen said, clients tend to be worried about their wealth even if they have only a few more years to live. “As an example, if someone has $600,000 to live off of and they are 70, it may not provide a great deal of financial confidence,” he said. “However, if someone has $600,000 to live off of and they are 90, then their savings are likely in great shape.”

Instead of building a large estate, Rechtshaffen suggested, older clients who are financially able should consider other possibilities to enrich their lives as well as others’. They could travel, buy a dream car, avoid meaningful hardships, address health issues, support their offspring, or give to charity.

“Much like any significant change in behaviour, learning to spend can be a very difficult thing. It goes against their nature and goes against their lifelong habits,” he said. “Sadly, we find that many people are simply unable to make the change.”

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