Saving vs. Spending: How to Find the Right Balance for Retirement

How do you strike the right balance between spending and saving for retirement? Many people struggle with this question, torn between enjoying life today and ensuring they don’t run out of money later. The key is finding a financial strategy that lets you spend wisely while securing your future. In this article, we’ll explore how to plan for both—without sacrificing your lifestyle or financial security.

Less time than you think

Studies show that couples often overestimate the time they will have together in retirement, which makes planning a daunting challenge.

Research from the University of Chicago found that while an individual may have a longer life expectancy, the joint life expectancy (the years both spouses will be alive together) is significantly shorter.

For example, a 60-year-old woman with a 62-year-old husband may have a life expectancy of 24.5 years, but their joint life expectancy is only 17.7 years. This couple's time to enjoy retirement together may be less than anticipated.

Consequences

The consequences of miscalculating the time you and your spouse may have to enjoy your retirement can be devastating.

In his article, "Death of a Partner: How Age Affects Grief and Grieving," psychotherapist John Wilson reflects on how grief manifests differently across various age groups.  

He emphasizes that the loss of a partner impacts surviving spouses uniquely depending on their stage of life, with the experience often tied to the nature and duration of the relationship.

Couples in their fifties who lose a partner may grapple with bitterness as their plans for a shared retirement suddenly dissolve. All those years of saving and sacrificing to enjoy time together are abruptly cut short, compounding their grief with a sense of lost opportunity.

For older couples, particularly those over seventy, the grieving process can also be heavily influenced by health and caregiving roles. As one partner often transitions into the role of carer for the other, the death of a spouse not only leaves an emotional void but also disrupts the physical and emotional routines of caregiving.  

This sudden shift can lead to a rapid decline in the surviving partner's health, exacerbating feelings of loneliness and isolation, especially if they live far from family.  

Wilson’s observations underscore the consequences of miscalculating our time with our loved ones.

Spending vs. Saving: How Do You Know What’s Right?

Spending money is easy.  There’s no shortage of temptations.

Conversely, financial experts constantly stress the importance of saving for retirement, preparing for the unexpected, and investing in your future.  

It’s easy to feel torn between living in the moment and safeguarding your financial future.

Finding balance doesn’t mean sacrificing joy today or risking hardship tomorrow. It’s about aligning your financial choices with your long-term goals and current lifestyle needs. Striking that balance requires clarity on your future and enjoying life as it unfolds.

‍How to Balance Spending & Saving for Retirement

A one-size-fits-all “spend and save” approach doesn’t work. Everyone has different goals, financial situations, and lifestyles.  

There are a few key factors you should take into account when making these decisions:

Current financial situation: Start by having a clear understanding of your current financial standing, which includes

a. Income: How much money do you have coming in each month?

b. Expenses: What are your essential expenses, like housing, utilities, groceries, and transportation?

c. Debt: Are you managing debt like mortgages, student loans, or credit cards? Prioritizing debt repayment is critical to freeing up cash for spending and saving.

d. Savings: How much have you saved? Do you have an emergency fund?  

e. Insurance: Don't forget to consider health, life, auto, and home insurance. Insurance provides protection and financial security in unexpected circumstances, such as accidents, illnesses, or natural disasters.  

Financial goals: Identifying your goals helps clarify how much you should save and can afford to spend.

Some common goals include:

a. Retirement: When do you plan to retire? How much will you need to maintain your desired lifestyle in retirement?

b. Short-term goals: Are you saving for a home, a vacation, or your children’s education?  

c. Lifestyle choices: Do you want to maintain a certain standard of living in retirement, or are you open to adjusting your lifestyle?

d. Retirement timeline: The closer you are to retirement, the more critical it becomes to focus on savings. If you’re in your 20s or 30s, you can generally afford to enjoy more discretionary spending while steadily contributing to your retirement accounts. However, it may be time to tighten up and boost your retirement savings if you're within a decade or less of retiring.  

e. Inflation: Inflation erodes purchasing power, meaning that the money you set aside for retirement today will likely buy less in the future. Consider protecting yourself by investing in stocks, real estate, or commodities that have historically outpaced inflation.

f. Market performance and risk tolerance: The performance of your investments will play a significant role in determining how much you need to save. You’ll need to balance high-growth but risky investments and safer but lower-yield options.

Understanding your risk tolerance is critical and is where professional guidance becomes invaluable.

How Long Will Your Retirement Savings Need to Last?

To strike a balance between spending and saving, you’d need to know how long you’ll have to enjoy retirement together.  Unfortunately, this is unknowable.

To make the best available calculation of how much time you will realistically have together in retirement, consider the following:  

a. Life expectancy: Life expectancy tables are helpful but can be misleading. You’ll need to consider health, family history, and lifestyle choices.

Factor in health conditions that may impact longevity, like heart disease, diabetes, or cancer.

Stay updated on medical advice to manage or reduce health risks, like maintaining a healthy diet, exercise, and regular medical check-ups.

Even if both partners live to an advanced age, the quality of time together could be affected by health issues that limit shared activities. Cognitive decline, mobility challenges, or the need for long-term care can diminish the quality of retirement years together.

b. Online calculators: There are online calculators that can help you estimate how much time you and your spouse are likely to spend in retirement together. These calculators consider factors like age, life expectancy, retirement savings, and other financial considerations.  

Why a Financial Advisor Helps You Balance Saving & Spending

Finding the balance between spending today and saving for tomorrow requires expertise, strategic planning, and often a neutral, informed perspective. A financial advisor plays a crucial role in this process.  

While we can’t predict your joint life expectancy with mathematical certainty, here’s how we can help:

a. Financial planning: We will assess your income, expenses, debt, and investments and take a comprehensive look at your financial situation. Then, we will work with you to develop a long-term plan tailored to your unique needs, balancing present enjoyment with future security.

b. Goal setting: Retirement savings often seem abstract until broken down into clear goals.  

We can help estimate how much you’ll need in retirement, factoring in inflation, healthcare costs, and lifestyle choices. With these numbers in hand, we can design a saving and spending strategy that aligns with your future vision while letting you enjoy life today.

c. Investment management: Saving for retirement isn’t just about setting money aside—it’s about growing that money over time.  

We can recommend investments that fit your risk tolerance and time horizon.

d. Debt management and cash flow analysis: An often-overlooked aspect of financial planning is managing cash flow and debt.  

We can assist in structuring debt repayment plans, ensuring that your spending habits align with your long-term financial goals. We can help you avoid common pitfalls like lifestyle inflation or overspending by analyzing cash flow.

e. Emotional support and objectivity: Balancing spending and saving is as much an emotional journey as a financial one. Often, the urge to spend on experiences, keep up with peers, or indulge in immediate gratification can cloud judgment.  

We offer objective insights, helping you resist impulsive financial decisions and stay focused on your long-term goals.

f. Adapting the plan:  Life isn’t static, and neither are your financial needs. Whether it’s a career change, an unexpected medical expense, or a market downturn, we will adjust your plan as necessary. We provide peace of mind by keeping your financial strategy flexible enough to weather life’s uncertainties.

Final thoughts

Finding the right balance between spending today and saving for tomorrow is a personal journey. It's important to focus not just on the dollars and cents but also on the bigger picture of your lifestyle, values, and long-term goals.

The goal isn’t to deprive yourself of life’s pleasures or to hoard every penny for retirement. It’s about crafting a financial strategy that lets you enjoy today without sacrificing tomorrow.

With the right plan in place, you can do both.

Struggling to find the right balance between spending and saving for retirement? A financial plan can help you enjoy life now—without financial stress later. Let’s create a strategy that works for you.

‍Schedule a free retirement planning consultation today!