She really liked the sweater displayed in the shop. She ran her fingers over it, posed with it and peeped into the nearby mirror. Then, reluctantly, returned it to the rack. She looked at the price tag one more time, and moved on. When I asked this friend why she wouldn’t buy it, she said it was too expensive. As we sat sipping the coffee, I asked her how she wore her diamond earrings casually, but hesitated to buy something that was for less than Rs.5,000. I really don’t know how to spend, she confessed.
While seniors criticise the younger generation for being huge spenders, disapproving their money choices and preferences, we may be suffering from the exact opposite malaise. We are not talking about the much bigger worry about outliving our wealth. Even those with adequate retirement corpus, stable investment income or pension, and an otherwise comfortable lifestyle, are unable to make spending decisions. They hold back and postpone because they don’t want to do it.
A survey of retiree wealth showed that more than half the people continued to have the same level of wealth even 15 years after retirement. This was across wealth levels. There were three primary reasons. First, many chose to work even after retirement, and continued to remain savers. Second, many disliked using the principal or drawing down their corpus, and continued to live frugally on the investment or pension income. Third, they ensured that appreciation in the value of their investments compensated for their drawings. Or drew less, where needed. Retirees take comfort in accumulating, rather than drawing wealth.
There are a few other factors at play, as explained by some of my 70-year plus friends, who admitted to an overall unwillingness to spend. Let me list the top four reasons that turned up in every conversation. First, they have lived their earning lives frugally, focused on getting their children the best opportunities in education and other activities. They are unable to suddenly focus on themselves. Second, their children take great care of them, usually paying for large chunks of expenditure, such as healthcare and hospitalisation, house repair and renovation, global travel and leisure. They don’t have to spend.
Third, they feel somewhat reluctant to express a desire for something new or lavish. My friend told me that it was easier for her to say that her daughter gifted her the sweater, or say she picked it up at a sale, than admit to yielding to temptation. Fourth, they are unable to differentiate between need and want when they consider their choices. Many spoke about their cars and air conditioners, choosing to keep what is working, than to upgrade, simply because they cannot make up their minds.
Instead of this, what could these reluctant spenders think about as they lived their retired lives? First, they could say, ‘the corpus is ours’. Created from our savings, through our years of working, and carefully investing, it is a source of joy, pride and accomplishment. Thinking about our wealth should not evoke feelings of anxiety or fear. Our responsibility for the children is mostly over when they have found a profession or job to pursue. We can see ourselves as a safety net should something go wrong in their lives. But playing the role of a custodian and seeing our assets as theirs is harmful for both parties.Second, being in touch with what truly matters helps in decision-making. One friend argues that he loves train journeys. His wife worries about their safety while navigating many trips to the restroom in a running train, and their inability to negotiate railway platforms and elevators safely. My friend wants to fly, but hates the economy class. Instead of not taking any trips at all, let’s do one business class trip in place of four, says his wife. However, he won’t spend. He is unable to make up his mind whether it is important to travel in comfort and pay for it or not. It is ok to suffer a bit, instead of paying more, seems the view.Third, pursuing a meaningful hobby keeps one engaged with people and helps find some purpose after retirement. Serious pursuit needs money, upfront and ongoing. It might help to develop this interest a few years before retirement, so that it is easy to make the large spending decisions while earning. Buying that piano, creating that carpentry workshop, purchasing those expensive camera lenses, investing in good quality trekking gear, are all essential spending decisions to pursue these hobbies. If there is purpose and joy associated with spending, it is easier to make those decisions.
Fourth, compromising on the quality of everyday life is not worthwhile, unless one is in dire poverty and needs to cut corners. Skimping on household help, giving up the car and driver, failing to attend to repairs promptly, not replacing appliances that don’t work, home cooking instead of eating out or ordering in from the many healthy choices, are all routine instances of neglect among seniors. From frugal to stingy, thrifty to thoughtful, many compromise and cut corners with spending decisions that have the power to make their everyday lives comfortable. Being simple and minimalistic is great, but one should be sure that one is honestly fine with the compromises that come along.
Fifth, making an annual plan for spending and prioritising is very helpful. Retirees have the time, energy, focus and discipline to be thoughtful about their expenses. For every head that we just discussed, make an allocation. Compare it with the annual income and the corpus withdrawal. Move things around so it makes sense to your current phase of life. Agree on a monthly and annual spending plan and stick to it, so that you are not viewing each decision in isolation and postponing what you can well afford. The daughter bought and gifted that sweater, my friend told me. I wasn’t sure if she was proud or a bit remorseful.
The Author IS CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING