Spending on experiences shows us the real value of money
- Robin Powell
- May 6
- 3 min read
Updated: Jul 11
Are you worried about your retirement savings running out too soon? For anyone approaching or already in retirement, making your money last is the top priority. Taking too much out at the wrong time, especially with market ups and downs, can have serious consequences. This is why understanding your withdrawal strategy is absolutely crucial for a secure financial future.
In this insightful discussion, experts delve into the critical aspects of retirement income planning. They challenge the traditional "4% rule," highlighting how current economic conditions might necessitate a more conservative approach, potentially suggesting withdrawal rates of 3% or even 2%. The conversation also explores alternative strategies, such as living off the natural yield of your investments through dividends and interest, which could help preserve your principal.
Want to gain a clearer understanding of how to navigate the complexities of retirement withdrawals and ensure your hard-earned savings last? In this short video below, we break down these key concepts and provide valuable insights into creating a sustainable income plan for your retirement. Watch now to learn more!
Key takeaways
Retirement Priority: Make Savings Last:
As you approach or are in retirement, your main financial focus should be ensuring your saved money lasts for your entire life.
Lower Withdrawal Rates May Be Necessary:
The traditional 4% withdrawal rule might be too high now due to economic shifts, suggesting a need for a more conservative approach (3% or even 2%).
Explore Income-Based Withdrawal:
Consider strategies like living off the natural income (dividends, interest) generated by your investments to potentially preserve your principal.
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Transcript
Robin Powell: A good financial planner doesn’t just show you how to invest. They can also help you to spend your money wisely. Instinctively, we like to buy things – stuff, if you like. But there’s plenty of evidence to show that spending on experiences – especially with loved ones – actually makes us happier. Author Carl Richards, who is himself a financial planner, says the most valuable purchase that he and his wife have ever made was a family rafting holiday in New Zealand.
Carl Richards: So we did this big loop, it was a five-day loop in New Zealand in Fiordland, with just me, my wife, and our four kids. At one point, we were four and a half days from the nearest road: we were out there, on pack rafts. I have, even talking about it now, I just have flashcards of scenes that I could tell you about that are unbelievably – I get emotional talking about it now – unbelievably valuable. There’s nothing else we could have done, and our kids will remember that forever.
RP: Why, then, are we so tempted to spend money on stuff over experiences? Well, it’s largely down to clever and seductive marketing.
CR: I don’t know if addicted is the right word. It’s not the right word, but we’re somehow sort of “lured” into this promise that stuff will bring happiness. If I just get… that. And the academic word for that is the “hedonic treadmill”. Everybody knows this: a week after the new car, and sometimes on the way home in the new car, you’re thinking, “Wow, this is amazing. Won’t it be cool when the next model comes out?” The iPhone is a great example, just because it’s on such a cycle. Everybody knows: when’s it going to come out? In the Fall? And then as soon as you get the new one, you’re thinking about the next one.
RP: So how do you prioritise spending on experiences rather than stuff? Carl admits it isn’t easy, but the starting point is to recognise the trade-offs involved.
CR: You can’t go anywhere without being bombarded with the message that “if you just get this, then…” “if this, then that.” and it’s usually “if I buy this, I will be happy.” But we know that’s not true, so we just systematically have to be aware of our decisions and opt out of that system. Just recognise you’re making that trade-off and then, as soon as you recognise the trade-offs you’re making, it becomes much more clear. Like, “Seriously, I’m going to buy the phone over taking my family on holiday?” It becomes much easier.
RP: Ultimately, what you spend your money on should reflect your personal values. So if you haven’t already, work out what is really important to you. That way, whenever you’re tempted by an expensive car or gadget, you’re more likely to make the right decision.
