In Dante’s “Inferno,” he puts “hoarders” and “wasters” together in the afterlife.
“They were so skewed and squint-eyed in their minds, their misering or extravagance mocked all reason,” he wrote.
Perhaps, like many other things, avoiding extremes may be the better path forward.
But what does that actually look like? Where is that desirable middle ground when it comes to spending or saving — especially in retirement?
While we may want to enjoy retirement to the fullest, who knows how long we may live or how much money we may eventually need.
Worse: Prior spending habits can be hard to change.
After her husband of 43 years passed away, Stephanie Hill went on a spending spree. “I was grieving. I was hurting. Spending money was like ‘retail therapy’ for me. I was almost like a ‘dry drunk.’ I didn’t know what else to do.” Eventually, her children stepped in and they worked out a budget and a forward plan.
After her husband retired, Faye Morgan said that he looked at his investments and savings when he first arose in the morning. “It was like a security blanket for him,” she said. ”We’d always saved so we had a nest egg when he retired. And, while things rarely changed from one day to the next, he kept looking at it daily. I think it was very reassuring to him.”
However, the proverbial “millionaire next door” who got that way by saving for the future may not be able to shift gears easily and enjoy their savings in retirement. And the spendthrift who has grown accustomed to a certain lifestyle may find downsizing very uncomfortable.
Now that “the future” has arrived via retirement, it is a new stage financially as well as emotionally for anyone. So, how can retirees confidently plan for an uncertain 20 or 30 years?
In fact, they cannot. We must all look into a cracked and murky crystal ball and take our best shot.
But perhaps examining our past spending inclinations and making a few reasonable assumptions can help us intentionally decide whether we want to “die broke” or leave a legacy — and either way, still enjoy life along the way.
In research conducted at Carnegie Mellon University a few years ago with over 12,000 respondents, about 24% were identified as tightwads, while about 15% were identified as spendthrifts. Spendthrifts said they could spend money easily with no regrets while tightwads said they spent money only with some degree of distress or worry.
The majority of respondents — about 60% — typically didn’t stress about either buying or passing up significant purchases. By the way, these definitions are based on how people feel about buying or not buying things without regard to credit card debt or actual spending habits.
So, how do you know which category you are in? An easily accessible scale to determine your tendencies can be found here.
Knowing your tendencies is one thing, but doing something about them is quite another.
For instance, the share of Americans who have credit card debt has jumped considerably in recent years including among retirees. About 68% of retirees had outstanding credit card debt in 2024, up “substantially” from 40% in 2022 and 43% in 2020, according to a new poll by the Employee Benefit Research Institute.
Since credit cards typically have the highest interest rate of any form of borrowing, the real cost of purchases is much higher than the sales price when relying on revolving credit. Discretionary travel and entertainment are the primary reasons given for this increase in credit card debt, according to a recent Bankrate survey.
Making memories, a tag line in much of the hospitality industry, can be quite expensive.
What constitutes “enough” in retirement varies based on each person’s individual situation. In general, financial advisers suggest that having a net worth equivalent to 20 times annual expenses at age 70 is a good rule of thumb. So, if you spend $100,000 a year, you should have a net worth of about $2 million. On the other hand, if you only spend $40,000 annually on all combined expenses, then you only need about $800,000. Having a target like this can help you decide if you’re spending too much or too little on your discretionary and nondiscretionary activities in retirement.
There’s an old adage that the key to real wealth is being satisfied with what you have. By the time we’ve reached retirement, we likely already have a plan in place. By further understanding our spending inclinations, we’re in a much better position to “live in the moment” and enjoy what we’ve already saved.
After all, isn’t that why we saved for retirement in the first place?