The Danger Of Being Too Good At Saving Money

This voice experience is generated by AI. Learn more.This voice experience is generated by AI. Learn more.Nathaniel J. Tilton, CFP, AIF, BFA, Managing Principal and Wealth Advisor, Tilton Wealth Management.

getty​Most of us have been taught that being a good saver is one of the foundations of financial success. The idea is to spend less than you earn and maximize your retirement contributions while avoiding unnecessary debt. If you do that consistently, and delay gratification today, you’ll have more choices tomorrow.

While it’s good advice, there can be an unexpected problem for people who follow it exceptionally well. For some, tomorrow never arrives.​

I have worked with many clients who spent decades accumulating wealth, only to reach retirement and discover that spending it can be surprisingly difficult. They may have more than enough money to travel, maintain their lifestyle, help their children or grandchildren and pursue things they’ve always wanted to do.

And their financial plan shows that they’re in great shape. But the same habits that helped them build wealth can become so deeply ingrained that changing those behaviors makes it uncomfortable, despite the numbers showing that they’re going to be OK.​

We often think about saving as a financial behavior. Over time, however, it can become part of someone’s identity. Year after year, many view success as making contributions for the future and watching their nest egg grow. While an ever-larger balance may represent progress, when it comes to spending from that account, it represents the opposite.​

The transition from when the paychecks stop and withdrawals begin can be difficult. A successful financial plan may involve intentionally allowing assets to decline, but psychologically, that can feel inherently wrong.

There are many variations of this. A client may comfortably spend thousands of dollars every month on ordinary living expenses but struggle with the idea of taking an additional $15,000 from a portfolio for a family vacation. Another client may have planned for years to renovate a kitchen yet continue postponing it despite having ample resources. The issue is one of permission, not affordability.​

I think of this as the “permission gap,” which is the difference between being financially able to spend money and feeling emotionally comfortable doing it. A financial plan might demonstrate that someone can afford a major trip, help a child with a down payment or spend more on experiences without threatening their long-term security. But sophisticated planning software can’t automatically undo decades of conditioning.​

That’s where financial planning becomes about more than investment returns and withdrawal rates. One of the questions I increasingly find valuable is simply, “What are you saving the money for now?” Earlier in one’s life, the answer is usually obvious: retirement, college, a home or financial independence. But once those objectives are sufficiently funded, the answer can become less clear.

Continuing to accumulate wealth isn’t inherently a problem, and some people genuinely want to leave as much as possible to their heirs. Multigenerational wealth is a perfectly legitimate goal. The important distinction is whether the accumulation is intentional or habitual.​

Financial planning naturally focuses on risks such as market declines, inflation, healthcare expenses and longevity, while the risk of waiting too long is rarely considered. A 65-year-old may reasonably expect many years of travel and activity ahead, but that doesn’t mean every one of those years will offer the same opportunities.

The trip that sounds exciting at 65 may feel exhausting at 80. The vacation home that creates years of family memories may provide less value if it’s purchased later in life. Helping an adult child when the money could materially change their life may be more meaningful than leaving the same amount decades later as an inheritance. Money has a time dimension that financial projections don’t always capture particularly well.​

None of this means retirees should abandon the habits that made them financially successful. There is an enormous difference between that and giving yourself permission to enjoy your wealth.

Before increasing spending, it’s important to understand sustainable cash flow, expected longevity, healthcare costs, taxes, market risk and potential long-term care needs. Significant spending decisions should be evaluated within the context of the overall financial plan. So, the objective isn’t to encourage spending for the sake of spending; it’s to make sure fear isn’t making the decision for you.​

The financial industry is very skilled at helping people accumulate wealth. We measure things like account balances, investment performance and net worth. But those measurements become less useful once someone has accumulated enough to support the life they want.

At that point, we may need to shift the conversation. Instead of asking only, “How can we maximize this portfolio?” it may be more productive to ask, “How can this portfolio maximize the life it’s intended to support?”​

That might mean traveling more, moving somewhere you’ve always wanted to live, helping your children while you’re alive to see the impact, supporting organizations you care about or maybe even eliminating the guilt associated with spending a little more on yourself. And for some people, it may still leave behind a substantial estate.​

There isn’t one correct answer here. The important thing is that the answer reflects what you actually value rather than financial habits you developed decades earlier. The discipline that helped you build wealth deserves enormous credit, but eventually money has to graduate from something you accumulate into something you use.​

A successful financial plan shouldn’t simply answer, “How much will I have?” It should also help answer, “What was all that saving for?”

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?