3 signs you’re hurting your retirement savings by spending too much

If you identify with any or all of these three signs you're spending too much before your retirement, you may need to revise your habits to live the life you want after you retire.

If you identify with any or all of these three signs you're spending too much before your retirement, you may need to revise your habits to live the life you want after you retire.

Your retirement savings sit on a teeter totter.

On one side of the teeter totter, you’ve got immediate gratification for your current quality of life.

On the other side, you’ve got delayed gratification with potentially much greater rewards on the horizon during retirement.

This is a central issue I work with clients on. I have to help them understand the trade-offs of spending too much versus the opposite of deferring everything and missing the only life they have.

Problem is, delayed gratification is difficult for us. We relate to the kid inside us who has to wait all the way until Christmas to open our presents.

Worse, we feel like we grew out of that part of our childhood by working hard in life to get to the point we’ve reached financially.

We justify to ourselves that we’ve earned the ability to spend more money with less thought.

I’m guilty of hurting my retirement savings …


Don’t tell anybody.

I’m kind of a gadget nut. Yep. I, Roger Whitney, struggle with temptation. Especially when it comes to gadgets.

And when I’m around a gadget I really want, sometimes I pound down on the immediate gratification side of the teeter totter and forget about retirement savings.

Retirement Answer Man or not, I still need that gadget no matter how much my retirement savings may suffer as a result.

This tendency of mine reared its ugly (but still somewhat lovable) head while I was wandering the airport before a flight recently.

I’d really been jonesing for an expensive set of headphones – the Bose Quiet Comfort 35 wireless headphones. These babies cancel out noise wonderfully, perfect for someone like me who does a lot of work on the go and just wants to tune out the world.

And there they were – out on display at a techno-geek store in the airport. Of course, I couldn’t resist the chance to try them after I’d had my eye on them for so long.

I liked ‘em. Kind of a lot.

I immediately imagined myself jamming to Adagio for Strings by Samuel Barber (you’d recognize it from the movie Platoon) while working on the road. In my mind, I could get more work done than I otherwise could have in noisy and distracting environments like the airport or coffee shops.

So, $350 later, I walked out with a new pair of headphones. In effect, I dipped into my retirement savings.

This is hyperbolic discounting, my first of three signs you’re spending too much before retirement.

1. Hyperbolic discounting

What the heck are those big words doing on my humble blog?

Hyperbole is exaggeration for effect. And people like you and me (me especially) exaggerate the need to have something shiny and new now versus later to justify immediate gratification.

In doing that, we discount the future for ourselves. Hyperbolic discounting.

I know that investing $350 now could lead to thousands of dollars more in my retirement savings accounts. I do.

But my human nature wins out and I take the bird in the hand.

Whether I like it or not, (I really don’t) for me and my awesome headphones, I valued spending that $350 right now over a much bigger reward later on. Stated more accurately, I valued having the immediate gratification over stopping to consider the opportunity cost of waiting.

I can resist everything but temptation.”
— Oscar Wilde


The purchase of those headphones for me is a lot like the top retirement mistake I see as a financial planner: retirement honeymooning.

People rightfully feel like they’ve earned their money and should be able to spend it. But when they retire, they suddenly have more time and money than they know what to do with.

That leads to the justification of buying a new boat, backyard kitchen, RV, (ahem – headphones), or whatever – all in the name of quality of life.

The fact is that many people, if offered $50 now or $1,000 in 10 years, will take the lump sum now. That’s a tactic lotteries use to pay out less to the rare winners.

It’s been studied by psychologists through studies like the infamous Stanford marshmallow test.

The people who choose one marshmallow now versus two later, (or headphones for $350 now instead of a Christmas gift from their frustrated wife later) are giving in to hyperbolic discounting.

How to avoid hyperbolic discounting

Even if your bank account can take the hit, have a little conversation with yourself about the teeter totter of immediate versus delayed gratification. Here are some questions to ask:

  • Will buying this now hurt my retirement savings in the future?

  • Am I saving enough first to allow me to purchase this?

  • Will an accumulation of events like this hurt my future?

  • Is my present quality of life really suffering without this?

  • How often have I had to ask these questions in recent months?

2. Deferring your investments

If you’ve got so much hyperbolic discounting – or just plain overspending – that you aren’t throwing much money at your retirement, you’re looking at things wrong. A listener of the Retirement Answer Man Podcast recently asked me how they should be spending their extra money.

There’s no such thing as “extra money.


I challenged them and other listeners to try to hit the maximum allowable 401(k) plan contributions for 2017 of $18,000 per year and then feed whatever they could beyond that into other retirement accounts.

Then, I asked listeners to take it up a notch by increasing retirement contributions by at least 1 percent. That’s little enough extra to keep your current quality of life. But 1 percent stacked over 30 years will make a huge difference to your retirement if you start now.

When to invest vs. when to save

I advise most people with a reasonable tolerance for risk to build an emergency cash account that will fund 3-6 months of your current lifestyle.

That’s a comfortable airbag, and could be necessary in case you or your spouse loses a job or a major client.

Beyond that, make sure you set aside enough money for the big-ticket items in your future. For me, that’s college tuition for my kids and an upcoming vacation.

3. Not paying down debt

That same couple who asked how to spend their extra income still had some debt on their hands, including student debt lasting into their mid-30s.

I like to pay off bad debt – and those school loans are bad debt. At 4.25 percent, paying them off has a built-in 4.25 percent return.

Beyond school loans, I’d prioritize any medical debt and then mortgage debt. Paying off your debt in any category will get you the return of not paying interest on them any longer.

In addition to cutting out interest payments, paying off debts increases the amount you can save. Once a debt is paid off you can redirect the payment toward something with earning potential.

First thing’s first

When it comes to retirement, you sometimes need to intentionally get on the delayed gratification side of life’s teeter totter.

But when you do that, I can promise you after coaching a lot of people into their golden years, your retirement will be a lot more comfortable and exciting than a $350 set of headphones today.

Question of the week:

Are you “bad debt” free or do you see more value in spending money in other areas?