Some people suffer from a certain form of optimistic financial denial. They look at part of someone else’s circumstances and use that to justify their own way of life, without considering the entire picture. Take, for example, a relative I have that I will call Stacey (not her real name). Stacey is nearing retirement, and she doesn’t have quite as much socked away for retirement as she would like because finances were very tight when she was young and she and her husband just didn’t have the extra to put away. Her husband died young, and she entered the full-time work force in her early 40s, which is when she began putting away for retirement in earnest.
Stacey isn’t one to worry. She tells herself that she should be able to get by just fine with the money she will have in retirement and uses the rationale first, that you never know how long you will live, and second, that her parents did just fine on a limited retirement. She is firm about retiring at 62 and cannot be persuaded otherwise; she is not interested in working part-time early in her retirement.
Regarding Stacey’s first point, it is true that you never know how long you will live. I have, unfortunately, known plenty of people who retired and died within a year or two. Others died before they were even able to retire. However, Stacey’s parents lived to be 88 and 90, respectively, so if she takes care of herself, there is a good chance she will live well into old age.
Second, her parents did retire on a relatively small retirement savings, but they made some serious adjustments to their lifestyle. Here are some of the smart financial moves they made to make sure their retirement nest egg stretched:
- they immediately sold their paid for house, freeing themselves from the expense of upkeep, property taxes, and heating and cooling a large home
- they took some of the money from the house to buy a fifth wheel trailer, and they lived there during the summer months on their children’s property
- they took some of the money and bought a trailer in a retirement trailer park in Florida. They were then only responsible for monthly trailer park fees and heating and cooling
- they took the rest of the money and invested it
- they only went out to eat occasionally, usually when their children were visiting them in Florida
- they sent each of their 38 grandchild a crisp dollar bill for their birthday and at Christmas
On the other hand, here is where Stacey is:
- she still owes $70,000 on her 1,600 square foot home
- she has no immediate plans to sell, which means she is paying thousands of dollars a year on property tax, maintenance, and heating and cooling costs
- she goes out to eat several times a week and plans to continue doing so when she retires as that is her main way to socialize
- she only has 3 grand-kids, but she spends $100 to $125 per child per year for Christmas and birthday presents
- she would like to travel, including traveling internationally, when she retires
While Stacey is right that her parents did not have a large, comfortable retirement, she is only looking at part of their financial picture. Her parents were willing to make significant changes to downsize their expenses so they could live comfortably on the retirement they did have. In fact, when her last parent died at 90, there was still enough left over to give a small inheritance to each of their 9 children. To have a comfortable retirement of her own, Stacey should also downsize her lifestyle. It is the only way to make the money stretch as her parents did.
When it comes to your own retirement, or financial planning in general, it does little good to compare your finances to others. Ultimately, it can lead to a form of optimistic denial that can lead to considerable financial stress in the future.
Do you know anyone who suffers from financial optimistic denial?