Don't Let Frugality Define Retirement Quality of Life

NEW YORK (AdviceIQ) -- You've heard about spending too much. What about people who spend too little? This is especially a problem for retirees who habitually tighten their belts, long after they need to. It harms their quality of life.

My usual advice is: "Be frugal." "Save for the future." "Live on less than you make." This is well worth repeating, even though too many Americans aren't following it.

Accumulating wealth typically requires people to live on much less than they earn. Frugality is the common denominator of almost every first-generation wealth builder.

But don't confuse living on less than you make with under-spending.

Like almost everything, saving is but for a season. Once people retire and stop earning money from a business or a job, a new era begins when it's time to consume the fruits of their frugality. The problems start when the wise scrimping of the earning years continues long past the time that it's necessary. Frugality then can turn into under-consumption.

Is it bad to continue to be thrifty? Of course it isn't. The habit of frugality isn't something people can turn off at a flip of a switch, and maybe that's part of the problem. Wealth accumulators have lived for so long with the money script of "Don't consume your investments or savings," that when the time comes to live off of their investments, it poses a significant challenge.

The result can be under-spending, which is frugality taken to extremes. My definition of under-spending: Expenditures that are significantly less than the amount you could conservatively dispense annually, and still have a 99% chance of never running out of money.

Under-spending is not the same as continuing to make prudent choices during retirement and economizing when possible. Typically, under-spending results in people failing to get adequate medical care, eat a healthy diet, live in a well-maintained and comfortable home, or use help to make life easier.

Take Martin and Eleanor. They worked hard all their lives and managed to save $2 million. Today, they are both 72. Based on a very conservative withdrawal rate of 3%, they could easily afford to take $60,000 from their portfolio each year. Instead, they withdraw $10,000. With the $30,000 they get from Social Security, they live on $40,000 a year.