Careful, strategic saving is a powerful tool for creating your self-funded future. It builds feelings of financial security—you know you’ll have more resources in retirement, but you also feel some degree of control over an unpredictable future. However, there’s a fine line between saving for your future and stealing from your present.
A 2020 Treasury report from the Federal Government found that “most people die with the bulk of the wealth they had at retirement intact”. Thousands of Australians are saving diligently all through their working lives, but when the time finally comes to enjoy the fruits of their labour, the habits of lifelong frugality hold them back.
The systems you follow during your working life have helped you build your wealth, but when the purpose of your money changes, the systems—and your financial mindset—should too. It takes both a clear plan and a clear perspective to balance responsible saving with enjoyable living.
Consider opportunity costs
Bill Perkins’s Die With Zero (2021) talks about the sacrifices we make when we over-save in our youth. “The sad truth”, he writes, “is that too many people delay gratification too long, or indefinitely. They put off what they want to do until it’s too late, saving money for experiences they will never enjoy.”
Perkins discusses the concept of “memory dividends”—experiences you can have earlier in life that grow more valuable over time.
For example, an overseas holiday with your friends in your 20s may not set you up with the same financial foothold as working and saving, but the memories and connections you form during that trip might have a greater impact on your life than any amount of hustling.
Additionally, while you’ll likely have a lot more money for adventures when you’re 65 than you did at 35, your body might not be quite as adventure-ready. Even if you’re in fantastic shape, activities like long-distance travel, hiking, skiing, and other bucket list classics will be significantly harder once you reach traditional retirement age. There’s no need to suppress your more adventurous dreams when both your desire and your aptitude for them are at their peak.
Realistic responsibilities
Of course, there are very rational reasons to want to maximise your savings. Experiences and memories are important, but long-term financial security reduces stress and keeps you from becoming a burden on your family as you grow older.
Many Australians also want to share their good fortune with their family, or perhaps leave a bequest that supports an important cause. However, as Perkins writes, leaving a substantial sum in your will isn’t the only—and may not be the most effective—way to build your financial legacy.
He argues that inheritances often come too late to be meaningful, with windfalls being much more impactful for your children in their 20s or 30s than when they’re approaching retirement age themselves. Similarly, charities actively need money right now. You may be able to donate a larger sum after a few decades, but the difference you could make to escalating issues like climate change or immediate disaster relief may be prioritise urgency over scale.
There are also non-financial ways to leave an impactful legacy or build generational wealth. Helping your children understand financial concepts like compound interest and diversified investments can set them up more effectively than simply handing over a lump sum, and donating your time is often just as valuable as your money for on-the-ground charities like Orange Sky or Red Cross. Spending time connecting with your family or giving back to your community pays dividends that can’t be measured in a spreadsheet.
Create a clear retirement picture
The ultimate tool for combating over-saving is clarity. Saving for an abstract, undefined future is impossible; accounting for infinite possibilities requires infinite funds. It is possible to make ballpark calculations for how much you’ll need for your ideal retirement lifestyle, and goals-oriented financial advice can help you create a more concrete savings goal for your retirement.
Creating a flexible, reliable plan for the life you want to lead takes the pressure off your bottom line, giving you a clear target rather than moving the goalposts every time your bank balance changes. You might even be closer to your number than you realise—you just need to figure out what it is.
Living a rich life
Saving for a self-funded retirement is both responsible and wise, but there’s no compulsory waiting period for living the self-funded life you want to live—you can start right now. Not knowing what’s ahead of you makes it difficult to set a clear savings strategy, especially if you have a complex portfolio with multiple income streams and equities. Clarity and confidence can empower you to live a rich life in the present and the future.
Capital Partners specialises in helping hardworking Australians plan out their own wealth maps, creating clear, confident plans to achieve their retirement goals in the future without sacrificing the present. If you’re thinking of taking the next step on your retirement journey (or just want some advice on where to put your feet), book a call with our team.
