6 Secrets to Living Your Richest Life
Dear Rich Lifer,
All your life you’ve been taught to save more and spend less. Live within your means.
A lot our readers have spent decades building on these good money habits.
However when you retire, the habits that helped you build your net worth become somewhat detrimental to enjoying the rest of your life.
Retirees face two problems: either they haven’t saved enough to retire in the first place; or they’ve saved enough but don’t know how to spend their savings in a way that maximizes enjoyment out of their remaining years.
Retirement requires a new set of habits, ones that often seem contradictory to everything you’ve been taught about money at this point.
American steel magnate and philanthropist, Andrew Carnegie, often said “He who dies rich, dies disgraced.”
My goal today is to make sure you don’t die disgraced.
1. New Frame for Your Money
When you’re young, you frame money into two distinct categories: income and capital.
You spend your income but you don’t touch your capital.
This habit becomes ingrained in us. You set up automatic transfers so a portion of your paycheck goes into your 401(k) and other savings, and you don’t touch this money.
When you retire though, you need to stop framing your money like this and become comfortable spending your capital that you’ve saved up.
Many retirees spend less than they can afford to, or attempt to increase income, leading to greater risk because of this mental framework. The fix: give yourself an income in retirement that draws from both your income and capital.
Managed payout funds pay you a percentage in value annually. This annual “income” is a mix of dividends and capital.
Another option is required minimum distributions (RMDs).
These are government-mandated withdrawals that start at age 70 ½. The annual RMD rate at age 70½ is 3.65%, increasing to 5.35% at age 80, 8.77% at age 90, and 15.87% at age 100.
When you remove the decision of when to cash out, you make retirement spending easier.
2. Avoid FOMO
Another retirement spending problem is when you feel regret for cashing out.
For example, you might sell some shares to use the cash to go on a trip. Then a few days later, you check the stock and see it went up 3%. It’s hard not to feel regret.
To avoid this fear of missing out (FOMO), try either using managed-payouts like we discussed earlier or set up a specific sell schedule for your investments.
You might sell a portion of an investment at the end of every month – this removes the burden of having to time the sale just right.
3. Most People Die Sooner Than They Think
This might sound risky but I assure you this isn’t live fast, die young advice.
According to data from the Social Security Administration, a man reaching age 65 today can expect to live, on average, until age 84.3. A woman turning age 65 today can expect to live, on average, until age 86.6.
About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.
When you look at the data for how long people believe they’re going to live, we see a different story. Young people underestimate their longevity, older people overestimate it.
For instance, 68-year-old men have a 71% chance of living to 78 but believe, on average, that they have an 82% chance of reaching that age.
Overestimations like this are why retirees have so much trouble spending in retirement.
Think about when you’re going to die, look at family history, your health etc. and then shave a few years off that number. Spend accordingly.
4. The Older You Get, The Harder It Is to Spend
Trips around the world are a lot easier to do when you’re in good health. Yet too many retirees put off spending on trips or vacations for fear of running out of money.
The data shows that a household headed by an 80-year-old spends 43% less than a household headed by a 50-year-old. Why? Physical limitations.
Of course, you could blow your savings on one risky investment or expensive jewelry or sports cars or other materialistic things but it’s really hard to spend on things you truly enjoy and value the older you get.
5. Spending Isn’t Just About Price
Your friends might tell you to live a little and splurge on wine or expensive meals out but if food is not your thing, your money could be better spent elsewhere when you retire.
Let’s look at travel again.
Imagine going on an international trip. You love traveling but hate flying.
Instead of spending more on expensive meals or guided tours, splurge on your flight.
Fly business class instead of coach. Don’t just look at the price and think you should automatically be buying more expensive things now that you’re retired.
Spend more on the things you enjoy doing.
6. Give While You Can Enjoy It
Giving is one of the greatest pleasures of living a rich life.
But most people don’t get to feel the enjoyment because they wait to give until they die. Imagine the look on your grandson’s face when he sees his school debt has been payed off completely.
If the money is going to be there when you leave anyway, why not see the difference you’ll be making in people’s lives today.
Enjoying what you have, creating memories, and sharing it with the people you love is much more “rich” than what you leave behind in your bank account.
Always remember that, you can’t take it with you.
I hope this helps you live your best and richest life.
To a richer life,