How to Keep Holiday Spending Under Control in Retirement

During the November and December holidays, most of us want to spoil family and friends with special foods and thoughtful gifts. However, the most wonderful time of the year is often the most expensive, and our budgets aren’t always up to the challenge.

According to a 2022 survey from the National Retail Federation, 43% of Americans can’t afford to pay cash for the holidays. Of those, 40% plan to dip into savings to cover the costs; another 32% say they’ll take on credit card debt.

Neither tactic is financially sustainable, especially for those who are on fixed incomes in retirement. That’s why it’s essential for retirees to create a holiday spending plan.

Judging from the 2022 Spending in Retirement Survey, some older Americans may already be in financial trouble. More than one-fourth (27%) of retirees spent more than they could afford in the past year, according to the study, conducted by the Employee Benefits Research Institute.

This year’s winter celebrations could be especially fraught, thanks to the one-two punch of COVID and inflation. The pandemic has kept some families from celebrating together, so the urge to make up for lost time can be a major driver for overspending. Many retirees don’t want to disappoint their grandkids and will give the Apple watch or a super-pricey gaming system, even if they really can’t afford it.

“If they’re going to (see) the grandkids, they’re probably going to indulge the grandkids,” says Delia Fernandez, a Certified Financial Planner™ professional based in Los Alamitos, Calif.

That could mean not only presents, but also a trip to a holiday program, an amusement park or the movies. Or you go out to dinner with the whole family, “and they’re waiting for you to pick up the check,” she says.

Back when you were still working, you probably did reach for the check. But that extra expense, on top of other holiday spending, could be too much for your fixed income.

Acknowledging these changes might be tough. The good news: With a little planning, you can still have meaningful holidays. Here are eight things to keep in mind as you get ready for Thanksgiving, Christmas, Hannukah or Kwanzaa.

1. Take all expenses into account

Not everyone lives near extended family. The higher cost of plane tickets or of gasoline if you’re driving is already going to put a hurt on your holiday budget. But it isn’t just travel and gift-giving that nibbles away at the bottom line.

You might host open houses or big family dinners. Houses get decorated inside and out. Visitors need to be picked up at the airport, requiring extra gasoline and maybe highway or bridge tolls. And there’s the added cost of feeding out-of-town guests who stay for a few days.

Grandparents might budget for the cost of tickets to “The Nutcracker” but forget that they’re usually talked into stopping for ice cream on the way home. While doing some last-minute holiday shopping, they have a hard time resisting just one more present each for the kids.

You can’t account for all holiday expenses because some of them (a flat tire on the way to the airport) can catch you by surprise. But you can set limits on how much you’re willing to shell out. “We have ice cream at home – let’s make sundaes!” is a perfectly valid alternative to stopping at the $6-a-scoop ice cream parlor.

2. Get real about what you can afford

You really want to get your grandkids—and your own kids—loads of terrific gifts this year. But now that you’re on a fixed income, you have to be realistic about how much you can spend.

“Sometimes you have to pivot,” says Misty Lynch, a Certified Financial Planner™ professional and life coach in Walpole, Mass.

A good starting point, she says, is figuring out the “why” of our holiday expectations. Perhaps you want to make your grandchildren’s celebrations better than the ones from your own childhood.

You might want to ease your adult children’s financial burden by shouldering most of the expenses or by writing large holiday checks. There may also be a hint of anxiety if the other set of grandparents is well-off; y don’t want your presents to seem paltry by comparison.

“(Giving) is usually based on how it will make us feel,” Lynch says.

People on fixed incomes can still spend. However, you need to be intentional about how much you buy, instead of just diving in headfirst on Black Friday. Make a list and stick to it. If you do your shopping in more than one trip, keep the list in your wallet and check it, lest you buy an extra gift for someone whose name is already crossed off.

3. Talk with your adult children

In past years, you’ve delighted in giving lavish presents or gifts of cash to your grown sons and daughters. Depending on your financial situation, that might still be feasible. But it might not be—and that’s a tough conversation to have, especially if you never talk about money with your kids.

Fernandez, the CFP in California, suggests you give a “developmental” excuse, as in “there’s been a new development”—namely, retirement.

“That was fine when I was working. Now that I’m retired, we have to do X instead of Y,” she says. It’s a good idea to broach this as early as possible, so your adult kids won’t be relying on that check to pay for their own holiday shopping or the everyday bills.

Will this talk be easy? Maybe not. But it’s necessary. Certified Financial Planner™ professional Daniel Kopp suggests breaking the ice by saying, “This is hard for me to talk about, but I need to cut back on holiday spending.” This gives adult kids an entry point to say that they’re also concerned about overspending during this time of year, or a chance to reassure their parents about what truly matters.

“Nine times out of 10, that’s going to be quality time together versus the gifts,” says Kopp, of Wise Stewardship Financial Planning in Sarasota, Fla.

4. Talk with extended family, too

If yours is a giant holiday gathering of cousins and aunts and in-laws, giving something to everyone gets pricier every year. Fernandez says you probably aren’t the only one feeling the financial pinch—but you might be the only one brave enough to say something.

“I think everybody will kind of breathe a sigh of relief,” she says.

A few ways to change gifting traditions:

• Secret Santa. Each adult draws a single adult name and buys that gift only. Set and stick to a reasonable spending limit.
• Kids’ gifts, or not? This can be tricky, especially if there are a lot of them. You could suggest a “gifts only for those under 18” rule. Or you could give each kid a symbolic present, such as a $5 bill folded into an origami animal (look online for directions). Fernandez recalls that her grandmother gave silver dollars every Christmas. “I still have them,” she says.
• Give to others. Suggest a cause and request that people bring items to donate. (Pro tip: Take some kids along with you, so they can learn the joy of helping others.)

5. Let the grandkids weigh in

Maybe you always take your grandkids to see “The Nutcracker.” But ticket prices have soared, and you have less income.

For all you know, the children were lukewarm about the experience after the first couple of times but went along because it was a chance to spend time with you. This year, ask what they want to do. Maybe they’d like to go caroling, or make popcorn and watch animated holiday specials in their PJs.

Phrase it along these lines: “I know we always do (event) every holiday. But I thought we could change things up this year. Got any ideas?”

And speaking of change…

6. Give less, but give thoughtfully

You’ve always loved giving multiple gifts to your two grandkids. And they loved opening them! But if you can’t afford it, then stop.

Instead, propose the four gift rule: Something you want, something you need, something to wear, something to read. Encourage your grandchildren to make gift lists as a starting point—but remind them that these are suggestions, not orders.

Or talk with their parents about giving a joint present, such as an annual family pass to the zoo or the children’s museum. You might also offer to pay for an art class or a week-long sports camp, and package this promise along with art supplies or a baseball.

As for your adult children, remember that expensive presents or gifts of cash could seriously damage your finances. This could put you in the position of having to ask them for help later. Instead, give them a modest yet thoughtful gift: a special brand of lotion you know your daughter enjoys, say, or something for your son’s sci-fi collection.

7. Celebrate a little differently

Instead of hosting a big holiday dinner with multiple meats, tell family and friends you’ll provide a turkey with trimmings (or a ham or a roast). However, ask guests to bring sides and desserts. A potluck gives them the chance to show off signature dishes, and it greatly reduces the financial pressure on you.

Maybe you always host an open house with fancy appetizers, desserts and roasted chestnuts. This year, let invitees know it will be cookies and cocoa rather than a big spread.

If you can’t afford an organized and expensive outing, look for less expensive events. Do an online search for concerts, plays, community caroling and other holiday activities in your area. Some will likely be free, and senior discounts could be available for those that aren’t.

Walk or drive around the neighborhood to look at holiday light displays. Make a batch of plain sugar cookies for everyone to decorate. Organize a backyard snowball fight on Christmas Eve.

What will make these activities fun is the fact that you’re doing them with the people you love. Get everyone on board by asking for suggestions for things you could do together.

8. Start thinking about next year

The best time to think about the winter holidays is the year before they happen. For example, post-holiday sales can be a huge boost to your shopping budget. Buying deeply discounted “evergreen” gifts such as wallets, glove-and-scarf sets, and classic toys (teddy bears, puzzles, blocks) gives you a head start on next year’s giving. One tradition that’s both fun and practical is giving a Christmas tree ornament to your grandkids each year. When they grow up and have trees of their own, they’ll have both ornaments and memories—and ornaments go on sale on December 26.

As for the rest of next year’s shopping, start your own version of a Christmas Club savings account. Figure out how much you need, divide that number by 12 and create an automatic monthly withdrawal into a separate account. Some online banks let you create and name such accounts. Calling it “next year’s holiday” can help keep you from dipping into that pool of cash.

The bottom line

You can celebrate as long as you do it mindfully. Debt incurred during the holidays can take months to pay off, which affects your peace of mind as well as your budget.

Will there be pushback? Maybe. Be prepared to say, “Yes, I miss those all-stops-out holiday extravaganzas, too. But times change. Let’s get creative about making the holiday season a time of fun and togetherness rather than overspending.”

And if that doesn’t work? Ask these folks to name everything they got for Christmas last year. Everything, right down to the stocking stuffers.

Chances are they’ll be able to recall special gifts, like a puppy or an engagement ring. As for the rest of it, who remembers? What remains, and reminds, is the time spent with loved ones. Holidays are a chance to be with the ones you cherish. Don’t let giving become a competition or, worse, a budget-destroyer.

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