The retirement series, part 2: Spending your money

There's no denying the importance of financial planning, as it's more likely to leave you in good stead when you do retire. In saying that, no matter how much money you end up with during your retirement, knowing how to spend that cash is what will help you truly enjoy your later years.

Whether you're feeling flush or need to stay frugal, what are the most important things you'll be spending your money on as you settle into your retirement years? From big-ticket items like an investment property or a yacht, to investing in travel and experiences, the options are out there no matter your budget.

In the second instalment of our retirement series, we look at the trends and spends of older Australians, and hear a few differing opinions on what to do with your cash as you head into those later years of life.

Your home is your castle

Some would argue the biggest single factor for standard of living in retirement – apart from your health – is whether or not you're living in your own home. With housing prices what they are – especially in places like Sydney and Melbourne – if you're heading into retirement and don't already live in your own home, the gap between renting and home ownership could only widen.

As well as avoiding the cost of rent, owning a home or paying off your mortgage before you head into retirement will give you more security – both financially and mentally, in terms of your peace of mind.

Looking to make some upgrades to your home? You're not alone. Recent statistics show that 77 per cent of people aged 60 to 69 are renovating their homes, with one in four doing home improvements every three months.

If you are one of those people who has managed to purchase and pay off your own home already, there's a high chance you're part of the growing number of older Australians helping their children get a foothold on the property ladder.

Research fellow for National Seniors Australia, Dr Karen Rees says there has been a shift in recent years towards parents helping their children get a kick-start financially.

"One women said to us, ‘I helped out on the deposit on the first home for both children so that they could get established in a home of their own. The children received a good education and were able to step into well-paying jobs. My current income does not cover the cost of running a home and so there will be nothing to leave the children."

This idea of helping set up your kids while you have the income, or to leave inheritance behind when you're no longer around, is an issue that's bound to spark debate.

When ABC Radio Perth put the call out to retirees on whether they'd rather spend what they've got now, or leave some savings in the bank for their kids, the responses were mixed.

"Our lovely daughters are happy for us to spend whatever we want and to enjoy our retirement," says Trisha. "They will inherit the house. That's about it."

Deborah, who wants to live frugally so she leaves behind a solid stash of savings for her kids, says they're the ones thinking different.

"The kids and spouses disagree wildly and want me to spend it all on me – but really, I can't."

Then there's Karen, who has learnt from her parents and wants to do the same for her own kids. "The parents of both my husband and me were frugal in their own lives and left good inheritances for us. [We want to be] good stewards, and we do plan to ensure our children are beneficiaries," she says.

Splashing out

If you're one of the lucky and growing number of older Australians who are going on a bit of a spending splurge during your later years, what are you choosing to splash out on?

From river and luxury cruises, to bigger budget holidays and luxury cars, there are some big-spending 70-somethings who are making the most of their later years.

While it's all well and good to be living it up, is there a financial danger in doing so? Both for yourself and your kids – is there are a worry you'll run out of cash before "running out of life" – so to speak?

A recent survey of 5,770 members of National Seniors Australia found that although members wanted to be able to leave their children some money, they had to prioritise funding their own essential needs – and that doesn't mean cruises and cars!

Of those surveyed, only three per cent planned to have all their savings left over for the next generation, while 41 per cent wanted to spend most of their savings during their own retirement.

Experiences matter

If you find yourself wondering how to spend your disposable or additional income in retirement, no matter whether it's a big or small budget, there are plenty of reasons to invest in experience over possessions.

Dr Thomas Gilovich, a psychology professor at Cornell University who is well versed in studying money versus happiness, is an avid believer that you should spend money on experiences like going to exhibitions, doing activities, learning a new skill or travelling, instead of physical possessions.

"Our experiences are a bigger part of ourselves than our material goods," he says "You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences."

This is arguably because your experiences can't really be quantified in the same way a material possession can, so they become more meaningful.

So, why not book a holiday, big or small? Or find a local community group to join, from gardening to a book club? 

One of the other reasons shared experiences are more valuable in connecting us with others is the shared consumption. You're much more likely to feel a connection with someone you learned how to speak Italian with, than someone who purchased the same flat screen TV as you.

Setting sail

Martin Brooker, a former Naval commander who now works on his own business as a leadership coach is a prime example of when investing in material goods and experiences hand-in-hand really pays off. He and his wife planned early and looked at their resources across income, assets and their own mortgage, and have now purchased a 10 per cent share in a 14m sailing yacht in Sydney.

Keen to enjoy time on the water in their later years, Martin and his wife made the purchase part of a five-year plan. This is all part of their bigger game plan to live closer to the water, and potentially purchase additional shares in the future.

"We came to the realisation that you only live once and now was the time to enjoy the yacht," says Martin.

The highlight of the experience? "Sailing out of Sydney harbour and sailing to Pittwater on a Monday while others are in the peak Sydney traffic!" says Martin.

Not only is this time on the water important for Martin and his wife as they get older, but they also want to prioritise time with family. When asked what other big-ticket items they are spending on in their later years, Martin says that spending time and money to see their grandson in Newcastle and travelling more frequently are both at the top of the list.

While not all of us are lucky enough to get out on the Sydney harbour on a regular basis, Martin's attitude to celebrating life through the decisions you make (big or small) is one we should all take into retirement!

Australian Pensioners Insurance Agency Pty Limited ABN 14 099 650 996 is an authorised representative of AAI Limited ABN 48 005 297 807, the product issuer. Limits, exclusions and conditions apply. Read the Product Disclosure Statement before buying this insurance. Go to apia.com.au for a copy. The Target Market Determination is also available. This advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.

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