How to Actively Plan to Live Within Your Means in Retirement (so You Don’t Run Out of Money)

As a financial advisor, I see people from all different backgrounds with different levels of net worth and goals. In fact, it’s one of the joys I get from my profession. I get to meet people from all different walks of life. With that being said, there is a commonality among everyone I meet: they are afraid of running out of money in retirement. In fact, a recent study from Allianz Life Insurance Company found that nearly 63% of baby boomers fear running out of money more than they fear death!

Two Reasons People Run Out of Money in Retirement

The two leading reasons people run out of money in retirement are from skyrocketing health care costs and living beyond their means. We’re not going to cover health care costs in this article as that topic alone could take up this entire writing, instead we’ll focus this month on living within your budget and how one achieves doing that.

No matter what retirement time frame you’re on, it’s never too late to start preparing both mentally and financially. It starts with creating a budget, and the budget starts with calculating your income. You want to make sure you are only considering the net amount you will receive from Social Security, your pension, and withdrawals from your savings. Then you want to list out each monthly expense and accurately establish the total amount. The interesting challenge here is determining what your actual expenses will be in retirement, and if they will change over time. I like to think of retirement in three stages; the Go- Go years, Slow- Go years, and No- Go years.

Go-Go Years

The Go- Go years are what you think of when people say “golden years”. It’s only natural to want to splurge, so it’s important to create a plan that allows for some splurges! Having an accurate spending plan for this stage is crucial, you don’t want your travels and fun to derail the rest of your retirement. The important takeaway here is budgeting this stage into your overall financial plan. One of the reasons you saved all of these years was to take that trip to Europe or that cruise to Alaska!

Slow-Go Years

The Slow-Go years are next. Longevity and health issues start to be a concern and can become more common. According to US Census Bureau, over the next four decades the 90 and older population is projected to more than quadruple! Having a plan in place to make sure you are prepared for these extra years is important. You may not travel as much during the Slow Go years, but health care costs can start to increase, and planning for these costs can help minimize surprises. Having the proper Medicare supplement plan is an important factor to consider, as that will affect your budget as well. Other insurances are best put in place during these years, if they have not been prior.

No-Go Years

Once you have enjoyed your Go-Go years and have endured your Slow – Go years, what do you have to look forward to? The No-Go years, of course! More focus on health care may be required for you and your loved one during this time, whether it be assisted care or in a nursing home. As of 2018 in Maryland, the average cost of assisted living per month is $3,820 with average monthly rates ranging from $1,820/ month to $9,020/ month. This means you could spend a total of $21,840 to $108,240 annually! These figures can sound daunting, but part of the reason you have saved all of these years is to be prepared for this. That is what having a budget and savings plan is all about.

Prepare for Retirement by Maintaining a Budget

A Gallup poll found only 32% of Americans maintain a household budget and only 30% of Americans have a long term investment plan that includes savings and investment goals. Making sure you are a part of that 30% should be your first priority. Being ready for all the stages of retirement doesn’t have to be a scary thought if you have actively prepared and already live within your means. Establishing an appropriate budget can be as straightforward as mentioned above. You can always ask a financial professional to assist you, if needed. I meet with clients everyday who have decided to make retirement planning a priority; the first step is establishing your goals, then a budget, and then a plan to meet those goals. Creating the plan is the easy part. The hard part is actually living the plan and staying within the numbers!

*This article originally appeared in the August 2018 Severna Voice and Pasadena Voice newspapers.