Although you should be concerned about your financial security in retirement, having sufficient money will not necessarily buy you happiness.
According to John Anderson, head of research and product development at Alexander Forbes, it is important to prioritise your spending according to your needs and financial resources.
A good way to achieve contentment and financial stability before and during retirement is to base your spending on Maslow’s hierarchy of needs. This is often portrayed as a pyramid with the largest, most fundamental levels of needs at the bottom and the need for self-actualisation (the need to be good, to be fully alive and to find meaning in life) at the top.
In designing your budget, you need to start at the lowest tier of the pyramid and work your way up.
- Physical needs: Your first priority is to have food, accommodation and access to basic health care.
- Safety: You must be able to protect yourself, your assets and your income. This requires spending on, among other things, homeowner’s insurance and medical aid, and having enough savings to provide a basic level of income if you live longer than expected.
- Belonging: We have a need to belong to a social group, such as a family or a community that shares our beliefs or interests. At this level of the hierarchy, you spend on other people, such as your family, and on entertainment and luxuries.
- Esteem: We want to be valued by others. This may involve spending on things that make you feel good about yourself, such as hobbies and sport.
- Self-actualisation: This may require spending on philanthropic causes, to help those in need.
Anderson says many people do not live according to this hierarchy. For example, retirees may not eat nutritious food, but they avidly watch television or spend money on things that satisfy higher-level needs.
“Having more money does not mean you will have a happier retirement. You can be happier with less,” he says.
Examples of how you can maximise your happiness through your spending patterns are:
- Instead of buying one big luxury item once, you will derive more satisfaction if you spend on small luxuries more often.
- Regularly spend small amounts on people such as your grandchildren, instead of buying them expensive gifts only once or twice a year.
- Take advantage of experiences that cost very little or nothing, such as hiking or going on a picnic with your grandchildren. Experiences are more satisfying than things, because the memories last longer and have more meaning.
- Delay purchases. The anticipation will increase the enjoyment and postpone spending.
Anderson says wise spending based on a hierarchy of needs is essential for most pensioners, because they did not prepare financially for retirement.
[With acknowledgement to Personal Finance, 28 March 2015]