The New Year is here, and every year it seems the top New Year’s resolution involves going on a diet. But just as many doctors recommend a “food diet,” some financial planners say people getting ready for retirement need to go on a financial diet, trimming wasteful spending in order to get themselves better prepared for what lies ahead. That’s why we wanted to bring back to your attention this article that appeared last year on the Kiplinger website, titled “Put Yourself on a Financial Diet Now for a Happier Retirement Later.” As the article says, “Developing some healthy financial habits now can help set you up for a secure retirement. And it may even let you retire sooner than you thought possible.”
Income Matters – but Don’t Overlook Outflow
The article was written by Pennsylvania-based financial planner David Hickey, and it makes some good points as far as it goes. The bottom line, Hickey emphasizes, is that while many seniors worry that their nest egg may prove insufficient to last through their retirement years, they often focus more on the money coming in than on the spending going out. As Hickey writes, “For many people, [excess spending] can be a huge factor in the success or failure of their retirement plan. They’ve built up a lifestyle of consumption, and when they retire, they usually don’t plan to change things much. Indeed, many expect to travel more, renovate the kitchen, move to a warmer climate or take up a new hobby. And those things cost money.”
Here at AgingOptions we’ve seen this scenario played out hundreds if not thousands of times. Inadequate savings coupled with insufficient discipline, all made worse by the lack of a coherent and comprehensive retirement plan, is indeed a recipe for retirement catastrophe.
The Budget Killer: Excess Debt
Of course, Kiplinger columnist David Hickey is just one of many voices warning seniors about the dangers of careless spending and excessive debt. This article we found on the New Retirement website says much the same thing. “Of all of the strategies that retirees can employ while arranging their finances for retirement,” the article states, “eliminating debt is among the most important. Almost all financial planners agree that carrying debt into retirement is a very dangerous move, one that can imperil your financial future and drain your retirement savings.” It’s foolish and even dangerous for seniors, especially those on fixed incomes dependent largely on Social Security, to waste urgently-needed funds on interest, fees, and other charges tied to debt. Even worse, some types of indebtedness bring the danger of rising interest rates, such as an adjustable rate mortgage. If rates go up even slightly, the strain on a retiree’s already-stretched budget could reach the breaking point. The New Retirement article calls it “very important to consider eliminating, altering, or reducing your debt, whether you are preparing for retirement or already retired.”
In the Kiplinger article, financial planner David Hickey suggests some strategies to pare down your spending. Here are some of Hickey’s ideas:
- Dump your debt. We mentioned this above but it bears repeating. Some planners advise that it’s fine to keep a modest mortgage in retirement, although we have our doubts. But as Hickey warns, “just about anything else — especially credit card debt — is going to be financed at a high rate. And the money you take out of your income to service that debt could hinder you from achieving your financial goals.”
- Ditch your kids’ debts, too. Are you still paying on your kids’ student loans? They may be out of the house and on their own, possibly even more financially stable than you are. “Frequently,” Hickey suggests, “the kids don’t even realize their parents are still shouldering that burden and would be fine with taking over the responsibility for the payments themselves.” It’s probably time for a family conference.
- Don’t be lazy. This is pretty basic stuff straight from “Budgeting 101.” Don’t go grocery shopping without a list. Cook at home instead of eating out. Control your Starbucks habit. Get a library card so you can borrow books and DVDs instead of buying them online or subscribing to Netflix or Hulu. Take economizing seriously.
- Trade today’s luxuries for tomorrow’s contentment. Whether it means buying a cheaper car, taking a local vacation or making the clothes last a bit longer, if you get creative, you’ll find it’s possible to save on everyday spending – and it can become a fun challenge, too. You’ll discover plenty of other ideas online at just about any “simple living” website.
Finances Are Only Part of the Retirement Picture
Hickey is right about one thing: “You can make some cuts now, on your own terms, or make them later because you have to,” he says. “I can tell you this from experience, though: The folks who are really happy in retirement are the ones who have figured out what it costs to live comfortably, and they know they have those expenses covered.” This is why a solid financial plan is certainly very important for someone preparing for retirement. However – and we can’t over-emphasize this point – a financial plan by itself is completely insufficient. The only way for you to ensure that you’ll enjoy the retirement you want is by planning comprehensively, and that means you need a LifePlan from AgingOptions.
Only our LifePlanning approach blends financial planning with legal protection, medical coverage, housing plans and family communication, so that all the “retirement gears” mesh properly. This interdependent approach to retirement helps you protect your assets, avoid becoming a burden to your loved ones, and escape the dismal trap of being forced against your will into institutional care. That’s the power of an AgingOptions LifePlan. To find out more, without cost or obligation, join Rajiv Nagaich at a free LifePlanning Seminar. These popular events are held throughout the region, so register here for the seminar date and time of your choice, or call our office during the week. Let us be your guide toward a fruitful and secure retirement.