Overcoming Frugality Syndrome, Ep # 204

Aug 9, 2021

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Do you have a case of frugality syndrome? Many of us are so used to saving and living frugally that we have a hard time pivoting from the accumulation stage of retirement planning into the distribution stage.

A recent retirement headline from Advisor Perspectives titled Overcoming the Frugality Syndrome caught my eye. This article discusses the difficulty that some retirees have in switching from saving to spending. I wanted to share this with you all since so many of you are diligent savers.

After the retirement headlines, we move on to our listener questions segment. Wendell is concerned about having all his eggs in one custodian’s basket and Stella would like to learn about rolling a 401K into a Vanguard target-date fund.

Outline of This Episode

[1:22] What is frugality syndrome?
[4:18] 3 tips for overcoming frugality
[8:55] A question about target-date funds
[14:49] Should you consolidate accounts into one financial firm?

Can too much frugality be a bad thing?

Rick Kahler at Advisor Perspectives recently wrote an article about the problems that can arise from too much frugality. He uses one particular example to make his point: the FI/RE movement. FI/RE stands for financial independence/retire early and those that try to achieve this goal often do so by becoming exceedingly frugal.

Many of you have been amazing savers over the years which is why you are on track to achieve your retirement goals. However, while your frugality can help you achieve your retirement goals, a long-term focus on constantly saving can make it hard to stop being thrifty and start spending.

Over the long-term, frugality becomes a habit and thriftiness becomes ingrained in one's being. This mindset makes the act of switching to the distribution stage of retirement a challenge for many people. Rick offers 3 tips on shifting gears from accumulation to decumulation.

3 ways to shift gears from accumulation mode to distribution mode

Recognize that frugality syndrome is normal. First, it is important to congratulate yourself on your financial achievement. Once you do so, then you can give yourself the grace and understanding that the transition from saving to spending will be a challenge.
Create a spending plan. A spending plan with set limits can help you overcome any anxiety that you may feel about overspending your carefully saved money. This will also help to ensure that your money will last and that you aren’t squandering away your financial future.
Get a financial checkup. Consider consulting a fiduciary financial planner a year or so before your target retirement date. You may also look into seeing a Certified Financial Therapist or Certified Financial Transitionist. These financial professionals can help prepare you for the mindset shift that comes with this monumental life change.

Creating a retirement plan can help you spend confidently

Don’t think of frugality as a light switch that you can turn on and off. It will end up being a mindset that you have to ease out of.

Early planning can help with the emotional aspects of shifting your financial mindset. Creating a thorough retirement plan can help you to spend confidently. I like to set retirement guardrails that help to safeguard a person from market risk. These set limits protect against sequence of return risk as well as helping with one’s financial mindset.