Beware “mid-term retirement extravagance” syndrome: HLB Mann Judd

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Self-funded retirees can be affected by a “mid-term retirement extravagance” syndrome which can have an impact on their otherwise carefully managed finances, warns Michael Hutton, head of wealth management at HLB Mann Judd Sydney.

“We have noticed that, after about a decade in retirement, some retirees can be tempted to go on a spending spree.

“It might be buying the luxury car they have always wanted, taking an extravagant holiday, and is often a combination of several different things.

“This is fine as long as they can afford it, and as long as such spending does not affect their longer term financial situation – including the quality of care they will be able to afford in their final years.”

Mr Hutton said that it seems that, as retirees start to feel the effects of ageing and recognise they are becoming less active, they are tempted to have a last splurge while they can.

“This is perfectly understandable but it is a mistake to think they will need less income or capital in the latter years of their life, as aged care and medical needs are increasingly expensive.

“Quality of life for retirees needing care can vary enormously.  Healthcare costs can rise dramatically after the age of 70, so retirees shouldn’t assume they won’t need as much money as they get older and more frail.”

“Retirees need to take these anticipated costs into account if they want to retain control of their home and long-term lifestyle.

“They should also be aware that going on a spending spree can lead to family conflict as, although it’s not their money, children sometimes get upset if they think their parents are being foolish with their spending,” Mr Hutton says.

At the same time, it’s important to find a balance when it comes to spending in retirement, he says.

“At the other end of the spectrum, we also see people in retirement who are scrimping and saving in order to leave as much as possible to their children.  Sometimes their children are giving them a hard time about their spending, because the children already think of the money as ‘theirs’.

“Effectively, some people are living poor but dying rich, because they aren’t comfortable about their financial position, or else it is not well structured – for instance, their wealth is tied up in illiquid assets such as property.

“The aim for retirees should be to achieve a happy balance between enjoying life now but also making sure there is enough to cover their future medical and support needs.

“A big part of our role is to help those who are able to, to lead richer lives – even if that means leaving less to the kids!” Mr Hutton said


HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.