Peter Dielissen in his home in Fredericton, N.B., on March 25. For Mr. Dielissen, the habit of saving is so ingrained that he likens himself to Scrooge McDuck.Stephen MacGillivray/The Globe and Mail
Martin Alderwick, 76, has been working since he was 12, caddying at a golf course for just a few dollars an hour. After a lifetime of working and saving diligently, shifting to spending from his nest egg hasn’t come easy.
“I have difficulty changing my habits because I was always a saver,” Mr. Alderwick said, who lives in Guelph, Ont.
Even though Mr. Alderwick and his wife bring in about $7,500 a month, he still hesitates to spend, even on things he enjoys. His financial adviser reassures him he can afford to loosen the purse strings, but the mindset of frugality is hard to shake.
That hesitation is common. Many retirees – even those with healthy nest eggs – struggle to spend, fearing they will outlive their money.
Financial advisers say that they’ve seen how spending in retirement can actually increase happiness, yet a lot of retirees can’t shake the habit of penny-pinching. Some worry they’ll outlive their savings. And now, with the uncertainty of a continuing trade war and rising costs that are expected to come with it, many are even more reluctant to spend, despite having the means to do so.
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Economists call this the “retirement consumption puzzle.” A forthcoming U.S. study from the Alliance for Lifetime Income found that married 65-year-olds with at least $100,000 in financial assets withdrew an average of about 2 per cent of their savings annually – far below the 4-per-cent annual spending limit that financial advisers often recommend, ensuring retirees don’t run out of money.
Ironically, it’s often wealthier retirees who struggle the most with spending, says Jason Heath, managing director of Objective Financial Partners in Markham, Ont. The same habits that helped them build wealth make them reluctant to enjoy it, he said.
Many retirees struggle to balance planning for a long life with making the most of their golden years, said Simon Wong, certified financial planner and head of financial planning at Blueprint Financial in Calgary.
“That fear creates a bit of paralysis around spending,” said Mr. Wong, who estimates 80 per cent of his retired clients underspend.
For Peter Dielissen, 78, the habit of saving is so ingrained that he likens himself to Scrooge McDuck, the famously frugal Disney cartoon character.
Whenever Mr. Dielissen wants to spend money, there’s a little voice in his head saying, 'what if?‘ he says.Stephen MacGillivray/The Globe and Mail
“Although I’m not a cheapskate, I act like a cheapskate,” said Mr. Dielissen, who lives in Fredericton, N.B.
Whenever he wants to spend money, there’s a little voice in his head saying, “what if?” he said. That fear has only grown with the trade tensions between Canada and the U.S., plus a weak loonie, Mr. Dielissen said.
Jody Casement, who lives in River Philip, N.S., and retired last year at age 57, said she has been more cautious with her spending because of the trade war. “I’m afraid things are going to get a lot more expensive,” she said. “I just feel a little bit better not spending right now. We’re consciously not buying some big things that we want to buy, because we just want to make sure that we have enough money going forward.”
For many retirees, shifting from saving to spending is a psychological hurdle, said Michael Finke, a professor at the American College of Financial Services in Pennsylvania, and a co-author of the Alliance for Lifetime Income study.
There’s no way to predict the future, so many retirees end up living primarily off government benefits like CPP and OAS rather than dipping into their savings, Mr. Finke said.
Ian Dennison, 73, is a case in point. He primarily lives off his government pensions and retirement funds, which provide about $45,000 a year, and he has barely touched the more than $100,000 in his tax-free savings account.
Mr. Dennison’s younger sister was diagnosed with Alzheimer’s a couple years ago and “it was a complete surprise,” he said. He wants to keep his TFSA savings intact “in case there’s any unforeseen difficulties down the road.”
One way retirees can ease into spending is by structuring their finances around a cash flow bucket system, said Marlene Buxton, a certified financial planner and owner of Buxton Financial for Retirement in Toronto.
You can have one bucket that’s just has fixed bills, such as food, utilities, insurance. Then, you can make a separate account for spending, and another for travel, and so forth.
“It’s not for saving, it’s not for paying things off, it’s not for giving to your kids. It’s just for your own personal spending on yourself,” Ms. Buxton said.
Another strategy is adopting a dynamic withdrawal plan, where retirees adjust their spending based on market conditions instead of sticking to a fixed amount each year, Mr. Wong said. Retirees can enjoy their savings without fear of depleting them too quickly.
Mr. Alderwick is trying to be freer with his spending but says it’s a slow process. He recently returned from a resort in the Caribbean. He and his wife have also been going out for dinner more often.
“I’m just realizing more and more that we can be more free if we want to,” he said. If you want to do something, “just say yes,” Mr. Alderwich said, “because I may not get the opportunity to do it again.”
