Manage Spending at Any Age
Submitted by Larry Frank Sr. on Thu, 11/07/2013 - 12:00pm
You save and save and save for retirement, trying to tune out those
escalating estimates of what you need to never run out of money.
Conventional wisdom blathers that in retirement you spend only 75% of
your current expenses, anyway. Think again, and here’s why.
Retirees often spend too much early in retirement and – the retiree’s
nightmare – outlive their cash.
Aside from having more time to pursue increasingly expensive recreation
from golf to cruises, other factors pinch retires like no post-work
generation before. These include, as Jill Krasney notes in her Business
Insider article “The Notion That You’ll Spend Less in Retirement Is Totally
Misguided,” skyrocketing health-care costs and bankrolling equally
skyrocketing costs of housing, education and other life expenses
for both kids and grandkids.
Why retire then? Why not keep working? As the Employee Benefit
Research Institute notes in its “2013 Retirement Confidence Survey,”
almost half (47%) of respondents retired earlier than planned because of
illness; a third of those respondents also retired early simply “because
they can afford to do so.” Maybe a big financial mistake.
Among other findings:
More than one in five workers and retirees say they expect to retire
later due to the poor economy, lack of faith in Social Security or the
government and inability to afford retirement.
More than a third (36%) report they expect to wait until after age 65
to retire and 7% don’t plan to retire at all.
Almost seven of 10 workers plan to work for pay after they retire.
Only a quarter of retirees report working for pay since they retired.
Nearly half of retirees are “not at all confident” about finding paid
employment in retirement.
Misguided notions and pessimistic outlooks lead to faulty retirement
planning at any age, working or retired.
First, you save too little when working because you expect to spend less
once you retire – justifying in your mind why you can spend more and not
save more now. Once retired, you again expect to spend less when older
and once again continue to spend more. Expect to cut spending later to
justify spending more now?
Eventually you run out of money, period.
Maybe illness or the economy ended the job and with it your income.
Maybe you spent what little you saved. In any case, yes: Your
expectation about future spending came true.
Do an annual checkup on your portfolio during retirement and try
these spending-control steps:
Admit that you spend too much and think about why you spend so
much. Does it make you feel good? Is it the pleasure of having money to
spend on what you like?
Make a goal of how much you want to save. Whenever you get
your money, put it all – or at least a portion of it – away.
Spend stuff on what you actually need. Keep a record of what you
Think about all the money you spent instead of saved. If you hit a
milestone in your saving goal, don't celebrate by blowing all of it at once.
Try to spend with cash as much as possible. Parting with actual
cash makes spending feel more real.
And remember: You can manage spending at any age.
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Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California)
in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has
an MBA with a finance concentration and B.S. cum laude in physics with
which he views the world of money dynamically. He has peer-reviewed
research published in the Journal of Financial
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