Being frugal with your money is a good idea when saving for retirement, but it can actually be harmful to your financial, physical and mental health in retirement.
You’ve spent your whole life watching every dollar carefully and now you have a sizeable nest egg for your retirement. You should be kicking back, relaxing and enjoying the fruits of a lifetime of labour.
But it can be hard to kick those penny-pinching habits after so many years. After all, it was those habits that got you here, it would be silly to spend like crazy now, especially in this economic climate, right?
Not necessarily. Underspending in retirement comes with its own set of problems that can ruin not just your financial health, but your physical and mental health too.
Entering retirement shouldn’t mean the end of your investments. But for many retirees, continuing to use your money to make even more money after you finish work is a risk they’re unwilling to take.
But by being too frugal, you might be avoiding investments or other financial opportunities that could help grow your wealth over time.
Australians are living longer lives, and compound interest returns in retirement can act as a safeguard against running out of money. Ironically, by sticking too closely to your budget you may actually be putting yourself at greater risk of that occurring.
Underspending can, naturally, also lead to a lower quality of life. What’s the point of retirement if you’re not enjoying it? By being too frugal, you might miss out on experiences and activities that could enrich your life and boost your happiness.
Your health, especially in your retirement years, is often the first thing that suffers when you underspend. For example, you may think you’re helping yourself by buying cheaper food, but cheaper options are often heavily processed frozen foods that can contribute to a number of different conditions.
By not eating right, you increase the risk of health problems down the road that could have been prevented with proper care and nutrition. In the end, these health problems can end up costing you more money than you saved by being frugal.
Being too tight with your money can also lead to feeling of social isolation. Loneliness and depression are all too common in older Australians, and one of the best ways to combat this is through regular social outings with friends.
But that inevitably costs money, which may make chronic underspenders feel uncomfortable. The idea of actually budgeting for social outings is anathema for some, but your mental health and happiness are something worth spending on.
It’s about finding the right balance between spending and conserving money that you’re most comfortable with, and that will deliver you the best quality retirement.
Do you find yourself still spending as little as possible in retirement? Would you say you’re enjoying your retirement? Let us know in the comments section below.
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