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Will Starbucks Ruin Your Retirement?

The downfall of the current generation may be avocado toast and expensive coffee. We are being warned that these items constitute needless extravagances that can put a big dent in our retirement savings. (Compare this to my recent discussion of Millennials who spend money only on basic necessities in order that they may retire very young.)

 The financial TV personality (and public scold) Suze Orman has declared that buying coffee is like flushing $1 million down the drain. Orman contends that although she can afford it, she would not insult herself by wasting money that way. She believes that the money should be saved and invested. (Apparently her mansion on a private island in the Caribbean and the private jet she flies to get there are prudent expenditures.)

Orman's approach may be challenged both as to her calculations and her judgement on how people spend their money.

On the math side (without all the numbers), the advisor and commentator Barry Ritholtz points out several flaws in Orman's assertion. Orman utilizes an unrealistic rate-of-return of 12% over 40 years to get to the $1 million figure. Using a more reasonable return results in a number well below $1 million. Factoring in inflation for the next 40 years, the number gets even smaller (albeit not insubstantial).

The practical problem with Orman's approach is that most of us don't have sufficient willpower to avoid small pleasures even if we have the desire to do so. As noted in an article on CNBC's "Make It" web site, it's difficult to say no all the time. Constant vigilance leads to frustration and can push you into spending sprees. The permission to say "yes" occasionally can help us stay the course.

In a more snarky rejoinder to Orman's admonition to spend only on needs, not wants, Jenny Zhang writes on Eater.com: "Repeat the mantra 'needs, not wants' over and over again until you feel yourself shredding your humanity like a snakeskin. Only once you have been reduced to little more than an automaton motivated by the soulless accumulation of wealth ... will you know true financial happiness."

Life is a balancing act. Everyone has a different view of what's important. Orman makes a value judgment as much as she makes a financial argument. Many people don't view living a life of denial as a life well-lived. We do, however, exist in the real world and excessive spending may put you at a significant disadvantage when the time for retirement rolls around.

Ultimately, the concern should be less on how you spend your money and more on whether you are saving enough to meet your needs in the future. If you save sufficiently, does it really matter what you spend your money on?

As for me, I've always found it worthwhile to buy a decent bottle of whiskey instead of settling for the cheap stuff.

Words of Wisdom

If this is coffee, please bring me tea; if this is tea, please bring me coffee. -- Attributed to both Benjamin Franklin and Abraham Lincoln