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Question: I’m 63, married, and have been retired for about eight months. I have a pension, collect Social Security and we have $1.5 million saved in our retirement account. My wife is also retired. We live a comfortable life, dining out regularly and taking two vacations a year. We are both happy, but I’m afraid that won’t last because of my wife’s spending habits. She is a sharp woman, and I love her dearly, but her shopping has been out of control lately.
My wife’s weakness is spending money on the little things. A pair of new shoes here, a bottle of perfume there, and all of a sudden I’m staring at a credit card statement for hundreds, if not a thousand, dollars. (With our $1.5 million nest egg, we only withdraw about $60,000 a year from our retirement accounts using the 4% rule, so a thousand bucks is a painful addition to our credit card bill.) If it doesn’t stop soon, I’m afraid it will derail our retirement plan, but I don’t know what to say. After all, it’s her money too. Can you help me?
Answer: “It’s her money too” is the key to fixing this problem, which will only get worse if you both don’t nip it in the bud, say financial experts.
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After all, depending on your health, your retirement could last thirty years, which is a lot of shoes and perfumes to absorb. Having said that (we’ll get back to the fix later), the retirement funds are both of your money, so how you spend it should be agreed upon between the two of you.
That’s not to say your wife should blow it every month on clothes and toiletries, but it is OK for everyone to indulge from time to time if the budget allows it.
“Retirement can be a tough transition when you no longer have the income provided by a career,” said Martha Callahan, CFP at FBB Capital Partners. “You can still go on nice vacations and buy extra clothes, but you can’t lose sight of the budget.”
Out-of-control spending can be a problem
While overspending is bad at any time, in retirement it is particularly worrisome because money is finite. You have your nest egg, and when that is gone, all that is left is Social Security, and if you are lucky (as you are), a pension.
If your wife is spending with abandon now, and if you have a couple of bad years in the markets or any health events, that money could evaporate pretty quickly. That is why discussing what spending now will mean to the future can be the most effective approach.
But before you do that, find out if there is another reason why your wife is spending so much money. Put the spreadsheets aside for a moment and approach her with curiousity rather than anger or resentment. You may discover that she is bored, has lost her sense of purpose, or feels lost since she stopped working and that shopping is filling a void. Sometimes, all it takes is redirecting that energy or attention elsewhere.
Have the trade-offs talk
If the trade-off talk is in order, show your wife what will happen if you continue spending at her current rate. Will someone have to go back to work? Will you have to downsize, forgo that multi-generational vacation? Tell her that. Focusing on the fact that retirement savings are finite could slow your wife’s spending. It may be difficult, but keep your tone kind and factual rather than resentful or accusatory.
If she’s the visual type, show her a side-by-side comparison of what retirement looks like at current spending levels versus with a 10% increase. Include a projection of how much inflation will raise the cost of her shopping habits over time. If she sees the money runs out 10 years sooner, that may be all the explanation your wife needs.
Budget in some fun money
While your wife may not be able to satisfy every whim, there may be some room in the budget to fill one or two of them, if it works for both of you.
You can even set up no-questions-asked accounts. Decide on a monthly amount the budget can sustain, and allocate that amount to each of your separate accounts to use as you each see fit. The retirement nest egg is intact, and she can still spend on occasion. Explain that her “fun money” account would not be an allowance, but a tool to give you both some spending autonomy and protect your relationship.
James Spinnelli, CEO of Great Valley Advisors, suggests setting guardrails, or limits on how much you can spend each month, to prevent overspending in the future. “Lifestyle creep is one of the main factors that can derail a plan for a couple,” says Spinnelli.
Remember you’re in it together
At the end of the day, remember that you are a team and what is yours is hers. Focus on communicating well for the sake of your finances and your relationship.
Discuss the trade-offs, identify what is driving the spending and find a solution that works for both of you. You worked hard to enjoy retirement together, so do not let this little bump throw your future off course!
