This is one that is sure to make me popular! “Sloooow down.” That’s exactly what some people need to hear about their finances and lifestyle. Let’s face it – some of us hate the word “budget.” I mean, after all, who wants limitations? I completely understand; I can spend money as well as anyone (just because I’m a financial planner doesn’t mean I’m a tightwad!). While still in the workforce, occasional bouts of excessive spending are “okay,” because there’s still time and cash flow to replenish the deficit. However, when the paychecks stop, the options to recover shrink.
Now, here’s the mistake. If outflows exceed inflows, the difference has to come from either debt (such as credit cards, lines of credit, etc., which just delay the problem) or from a permanent reduction in retirement assets. Unfortunately, the more investment principal is reduced, the greater the likelihood of running out of money. A very common source of stress for retirees is that they simply don’t know how long their assets will last and how much they can draw out each month. The solution, on the other hand, is no mystery . . . a well-constructed financial plan is going to provide a year-by-year projection of how much consistent income the accumulated assets can provide. That income (after taxes, of course) is what can be spent.
This is why I love planning for baby boomers and retirees. I know my clients can be more confident about what they want to spend without an unnecessary fear of running out of money. I enjoy being able to tell them to, “Go ahead, plan on that new kitchen, automobile, or vacation,” while also addressing the threats to retirement security – like long-term care and future inflation. Heck, they can even plan on bouncing the check to the undertaker (well, not really, but they can certainly decrease the chances of leaving a big windfall to anyone when they die).
Want one more reason to plan ahead? I have worked with over four hundred retirees, many of whom were couples. While I don’t presume to be a relationship counselor (and with apologies to Dr. Phil), I will say that spousal harmony seems to increase proportionally to financial independence. More prudent spouses seem to relax once they have a budget and know that they’re not going to run out of money. And, the more carefree spouses are happier because they get to spend and have fun, which is what they wanted in the first place. So, my financial advice this week is: “Don’t fight. Get a plan!”