Cutting Expenses for Retirement? 11 Reasons You Might Regret Doing So
Written by
Laura Beck
Edited by
Levi Leidy
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For many of us, retirement on the horizon means cutting back on expenses so we can live out our golden years in style. But that’s not always the best way, say some experts.
GOBankingRates spoke with financial experts to find out the reasons why trimming down on expenses as you near retirement might be a risky move. Here are 11 reasons why you might regret slashing your expenses in preparation for retirement.
Diminished Quality of Life
While saving money is obviously important, it’s not more important than living a life you enjoy. Tyler Meyer, founder at Retire to Abundance, thinks it can be a recipe for not enjoying yourself.
“Sacrificing hobbies, social activities and travel might save money but could also diminish your happiness and overall well-being during your retirement years,” he shared.
Neglecting Health and Wellness
Skimping on health-related expenses is never the right move.
“Reducing spending on health-related expenses can be risky,” shared Meyer. “Neglecting preventive care, regular checkups or essential treatments can lead to more severe health issues down the line, resulting in higher medical costs and potentially reducing your quality of life.”
Overlooking Home Maintenance
It might be tempting to cut back on home repairs to save money, but try to resist. According to Meyer, skimping on home maintenance to save money can lead to bigger, more costly problems in the future.
“Regular upkeep and timely repairs are essential to maintaining your home’s value and avoiding expensive emergency repairs,” he said.
Social Isolation
A vibrant social life keeps us happy and healthy – and cutting back on that simply to save a dime doesn’t make a ton of sense.
“Maintaining social connections is crucial for mental and emotional health,” said Meyer.
Missing Out on Investment Growth Opportunities
Dutch Mendenhall, author and founder of RADD Companies, emphasizes the importance of balancing expense-cutting with smart investing.
“By focusing solely on cutting expenses without investing the savings wisely, you miss the chance to grow your wealth significantly,” he noted.
Increased Risk of Missing Financial Goals
Without looking at all of your financials – including your investments – you might not meet your retirement goals, said Mendenhall.
He provided an example: “If your investment returns are too low because you didn’t invest the saved money, you may fall short of your retirement needs despite diligent saving.”
Inflation Erosion and Opportunity Cost
“Money saved but not invested may lose its purchasing power due to inflation,” Mendenhall shared. For instance, “$2,000 saved today will buy less in the future if it’s not invested to outpace inflation.”
He also highlighted the potential missed opportunities. “Instead of investing in real estate or stocks that could double or triple your savings over time, you might only earn minimal interest in a savings account.”
Stress and Anxiety
One thing that’s not talked about enough is the stress and anxiety that comes from constant saving.
“The pressure to continually find new ways to save can lead to a scarcity mindset, affecting your mental health and overall well-being,” said Mendenhall.
Neglecting Professional Advice
In an effort to save your dough, you might pass on hiring financial advisors. Unfortunately, that could be a big mistake that Mendenhall warned could lead to “suboptimal financial decisions.”
Find a financial advisor you trust and plan to spend a little money to set yourself up for your golden years. It’s worth it.
Potential for Increased Debt
This one is counterintuitive but true: Cutting too many expenses can sometimes lead to unexpected costs and debt.
“If you cut out an emergency fund contribution to save more for retirement, an unforeseen expense could lead to high-interest debt,” said Mendenhall.
Missing Out on Tax Benefits and Passive Income Opportunities
This is a big one. If you’re skipping contributions to your IRAs or 401(k)s to save a buck now, you might miss out on tax deductions and the benefits of tax-deferred growth
Mendenhall also believes you’re missing out on passive income sources. “Not investing in dividend-paying stocks or rental properties can mean missing out on consistent income streams that grow over time,” he stated.
The Final Word
Aaron Cirksena, founder and CEO at MDRN Capital, summed it up well: “It depends on what you are cutting out. For example, if you cut out healthcare expenses, you might end up in a deeper hole if there is a medical emergency and you are not covered. Also, if you cut out investments of assets, you can limit your growth and actually decrease your retirement fund overtime.”
Saving money and cutting expenses is often a good idea – but not always. With this information, you can take a long, hard look at your retirement plan and make adjustments as you see fit.
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