Spending Continues, Even when Income Doesn’t

Personal Money Planning |



By Gary Silverman, CFP®

How do you know you are ready for retirement? Last week we peered into the need to retire to something—to continue to have a purpose to wake up every day. This week we remind you about the money stuff.

The obvious need is to have money continue to come into your life after the paychecks stop. After all, the money leaving your life doesn’t stop just because you are retired. Perhaps there is less wear-and-tear on the car, you don’t need as many outfits to wear, and you don’t need to pull up to the filling station quite as often; but you still need to wear something, eat something, and live somewhere.

My past writings have focused on how to figure out if you have enough money in investments so that in addition to pensions and social security, you will generate the income you need. So I’ll just mention a couple items about figuring that out that people continue to mess up: You might live longer than you think, your investments might not do as good as you think, and things might end up costing more than you think. Making sure that those issues are covered in your financial plan is critical.

A major part of that plan is health care. It’s unavoidable, and it’s one of the biggest ticket items for many toward the end of their lives. Here adequate insurance is a must to prevent calamity.

One thing that makes retirement easier is to be debt free. Now, I don’t think that everyone must have every debt paid off ahead of time; but the absence of debt can make it easier to recover if you mess up somewhere or the world messes it up for you.

In that vein, all of the lessons I’ve shared in my columns over the past couple months about emergency funds and the like apply here. You will still have emergencies and you will still need to save for future big-ticket spending.

A problem I often see is someone freshly retired with plans to live on their big 401(k). They point to it and say they’ll get 10% or more from it since that’s what they made the last many years. They point to it and say that it will cover their emergencies since it is so big. They point to it and say that it will handle the purchase of the next car, vacation, and the like.

Well, no, you can’t count on the decade of the 20s producing the same portfolio gains as the 10s: If for no other reason than the decade of the 00s producing about 0% in stock returns. And if you are counting on your 401(k) pool to pay for your general budget, you can’t double-count it to also handle non-budgeted emergencies. And you certainly don’t want to triple-count it to also handle non-budgeted big-ticket items. To better visualize this, talk with your financial planner, or check out a Basic Retirement Forecast calculator like we have on our website (www.personalmoneyplanning.com/click-explore-your-money).

All of this takes a bit of effort to ensure you are financially ready for retirement. Sorry…you have to work at it, or you have to keep working longer.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.