Retirement should be a time when we feel comfortable rewarding ourselves for the hard work and sacrifice we put in during our working years.
Often, though, people feel guilty doing so and end up foregoing the occasional treat or reward. The reasons vary, but mostly they’re a combination of financial and psychological factors.
It’s unfortunate because even small rewards can go a long way toward helping us maintain good mental and emotional health during retirement. I’m not talking about reckless spending;
I’m talking about having a well-thought-out financial plan that:
- Allows you to occasionally treat yourself, without having to tap into your principal
- Gives you a “permission slip” to spend money on yourself, without feeling guilty about it
- Could help make your retirement income a renewable resource
However, before we get to that, let’s examine why the occasional reward can be so important for our overall good health during retirement.
For many, the satisfaction we get from doing our jobs well provides an important sense of purpose and accomplishment. Once we retire, that sense of accomplishment can go away and leave an emotional and psychological void—if we don’t find healthy ways to replace it.
Rewarding ourselves might sound frivolous or self-indulgent, and it can be if carried to an extreme. Psychologically, however, rewarding ourselves can help keep us balanced, centered, and motivated to maintain healthy habits in all areas of our lives.
That being said, this is not an issue for everyone. For some, retirement is its own reward, and they’re perfectly content enjoying their time without feeling the urge to reward themselves.
However, I believe many people do have specific rewards in mind for their retirement years, and they’re important. It might be something as simple as taking a cruise or as extravagant as buying that boat you’ve always wanted.
So, now that we’ve addressed why it’s important to reward yourself in retirement, let’s examine an approach to investing that can help you do so in a financially responsible manner — Investing for Income.
To do so, I’d like to share an experience I had at a Barrett-Jackson classic car auction that does a nice job of illustrating the value of Investing for Income as it relates to rewarding yourself in retirement.
At the auction, I saw several vintage models from the 60s and 70s being sold for between $40,000 and $70,000. While I sat there, it occurred to me that many of these cars were the same cars people my age dreamt about owning when we were kids.
Then I wondered…how many of these people would feel comfortable spending that much money on their dream car now, even if they had a sizeable portfolio? The answer, I realized, was not many. It was probably because most were still heavily invested in traditional growth-based financial strategies, that didn’t allow them to see their retirement income as a renewable resource.
For example, let’s say you have $500,000 saved for retirement and it’s invested primarily in stock mutual funds. Would you feel right selling shares of your fund to purchase a restored ’72 Mustang convertible?
Probably not, because you might worry that afterwards, the market could drop, and that withdrawal might never be recovered. In other words, you’d realize your mutual fund is not a renewable resource.
Now, instead, let’s say you had that $500,000 invested in bonds and bond-like instruments, generating $25,000 in interest and dividends each year without having to touch your principal.
In just two years, this investment could have generated enough income for you to buy your dream car in cash!
It would be like having a permission slip from your significant other to spend the money because with this strategy, your retirement income is a renewable resource, like wind or solar power. For your significant other, it could provide them with permission to reward themselves with that trip they’ve been wanting to take with the grandchildren.
The point is income-based financial strategies can help make your retirement income a renewable resource that can enable you to do what you want financially, not just what you think you need.
If you’re interested in learning more about Investing for Income, visit TheRetirmementIncomeStore.com to sign up for a complimentary three-month trial subscription to The Retirement Income Store® Newsletter.
David J. Scranton, CLU, ChFC, CFP, CFA, MSFS, is a nationally renowned Money Manager, Amazon Bestselling Author, national TV Host of The Income Generation, Founder of Sound Income Strategies, LLC, The Retirement Income Store®, and Advisors’ Academy. With over 30 years of experience in the industry, Dave specializes in income-generating savings and investment strategies.
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