For people hurtling toward retirement, the standard personal finance advice is to continue to fund your retirement accounts as aggressively as you can, including taking advantage of catch-up contributions.

Those additional contributions can add up to a tidy sum in retirement, but after age 60, they have fewer years to compound, and the tax deferral isn’t as valuable. If your retirement numbers are in relatively good shape, however, consider these four spending strategies with a positive psychological payoff.

Strategy 1: Get ahead of big-ticket transactions

As retirement approaches, it’s helpful to forecast big-ticket outlays over the next two to five years, like home repairs or improvements or cars you’ll need to replace. If you’re still working, you can fund them out of cash flows rather than putting additional funds into your retirement accounts.

Pushing those big-ticket outlays into your working years has a psychological benefit. That’s because pulling money from your investment accounts can be fraught, especially in the early years of retirement, when you’re still getting your sea legs. That challenge can be especially acute for people who plan to delay Social Security; they’ll be drawing all of their cash flow needs from their portfolios in those years. Spending from working income is apt to be psychologically more palatable.

As you think through what you might want to spend on, lean into your vision of retirement. Will you pursue your passion for cooking? If so, splurging on new counters might be money well spent. If more road trips are in your future, lining up a safe, reliable set of wheels should be a priority.

Strategy 2: Pay down debt

The calculus on prepaying a mortgage usually boils down to which decision provides the better “return”: debt paydown (and the relief from the interest service that accompanies the debt) or investing in something that offers a similarly safe return.

It often depends on the prevailing interest rate environment. Today, many mortgage holders could reasonably earn more on their safe investments than they’re paying to service their debt. Consider liquidity and spending needs too. If  paying off your mortgage  would require you to crack into your retirement account and trigger a big tax bill, or leave you cash-strapped and less flexible in retirement, you’d want to think twice.

However, mortgage paydown is the ultimate “sleep at night” allocation, especially as retirement approaches, because it helps you skinny down your fixed expenses and adopt a flexible approach to your discretionary spending, which in turn can  boost your lifetime retirement spending. I’ve yet to meet a single person who paid off a mortgage and regretted it.

Strategy 3: Build up liquid reserves in a taxable account

You can put as much into your taxable account as you wish, and you can also pull as much out, without strictures. Being able to spend from taxable accounts with minimal tax implications provides the leeway to pursue other worthwhile strategies in the early years of retirement, such as converting traditional IRA assets to Roth, for example.

But don’t overdo your allocations to safer assets in your taxable account. Cash has a low return relative to other assets regardless of where you hold it. You might not even outearn the inflation rate! I like the idea of retirees holding no more than two years’ worth of liquid reserves—CDs, money market mutual funds, and so on—across both taxable and tax-sheltered accounts.

Strategy 4: Splurge

If you’re in your 60s, it’s a good bet you know loved ones who were struck down in the prime of their lives, before they really had a chance to enjoy their retirements to the fullest. So why not lean into the big, fun experiences that you’ve been “saving” for retirement while you’re still working and healthy?

As Jamie Hopkins notes in my book  How to Retire, the greater good in this case is that you’re continuing to work and earn an income, thereby forestalling portfolio withdrawals. If taking a few amazing trips a year or buying a vacation home now makes continuing to work more palatable and also helps you feel more comfortable with the splurges, then those allocations are well worth considering, even if they mean you have to pull back on your savings.

_______

This article was provided to The Associated Press by Morningstar. For more retirement content, go to https://www.morningstar.com/retirement.

Christine Benz is director of personal finance and retirement planning for Morningstar and co-host of The Long View podcast.

Related Links

Take This Simple Step as You Approach Retirement

https://www.morningstar.com/retirement/take-this-simple-step-runup-retirement

Bonds, Cash Remain Top Sources of Ballast for Equity Investors

https://www.morningstar.com/bonds/bonds-cash-remain-top-sources-ballast-equity-investors

Risk, Not Volatility, Is the Real Enemy for Investors

https://www.morningstar.com/markets/risk-not-volatility-is-real-enemy

Story continues

Why did you choose to attend Bentley? 

I wanted to find a school that allowed me to combine both business and language.  

I grew up working in my family’s restaurants in Western Mass., so I have been surrounded by business from an early age. As I got older and started working more intensely in this environment, I developed a real passion for the ins-and-outs of business.  

On top of that, my grandparents are Chinese immigrants, so the Chinese culture has always played a big role in my life. Since I studied Mandarin Chinese starting in kindergarten, the ability to continue that at college was non-negotiable. When I toured Bentley, it all clicked and felt as though I’d be able to pursue all my interests to their fullest extent.   

What stood out about the Language, Culture and Business major, and Finance minor? 

What really drew me to Bentley’s Language, Culture and Business major was that it wasn’t just language studies — it also highlighted global perspectives and how to adapt to a highly globally connected business environment. At the same time, I was interested in the analytical and strategic side of business, which led me to the Finance minor.  

Together, I believe they allow me to approach business problems and solutions from both a quantitative and human-centered perspective. My finance background gives me the technical foundation to analyze performance and then make strategic decisions, while Language, Culture and Business has helped me understand the people and environment that those decisions impact. 

Are there specific Bentley professors or classes that helped you connect the dots between finance and culture? 

Yes, several of the required courses for my Language, Culture and Business major really helped me understand how cultural context influences economic behavior, negotiation styles and decision-making. Pairing these skills with my finance courses allowed me to think more critically about how financial strategies play out in global markets and where cultural nuances can directly impact outcomes.  

If I were to choose what course has impacted my choices the most, I would say Chinese for Business I (MLCH 201) and Chinese for Business II (MLCH 208) taught by Fei Yu, assistant professor of Modern Languages. I thoroughly enjoyed taking these courses because they made me realize that language can be applied to so many industries and made my aspirations to work internationally seem possible and within reach. I also gained important skills such as interview skills and resume skills.  

At Bentley, there’s a strong culture of encouraging students to explore multiple interests and see how they connect for future careers.  

Were there other campus experiences that helped blend your cultural and business interests? 

Yes — being involved in organizations such as the Women’s Leadership Program and the Bentley Dance Team helped me work with diverse groups of people and develop strong interpersonal skills. Additionally, studying abroad in Florence, Italy, made me comfortable with change and sparked a new fire to continue learning about cultures other than my own.