Retirees: The #1 Reason Preventing Their Happily Ever after Retirement
Today I want to talk about a huge issue that only seems to be getting worse in our society: overspending. I came back to work from a quick maternity leave to find out some clients requested more money while I was out. Now the one couple is retired, and the last time I spoke with them they were thrilled to tell me they have booked a trip for every month for the next 12 months. After picking up my jaw from the floor, I got myself together and said how exciting for you. The reason for my complete shock is the last few calls we discussed spending less money since they are spending a dangerously high percentage of their assets. You see there is this famous 4% withdrawal rate rule for your money. It's a very old rule and it says you can conservatively spend 4% of your assets each year going up with inflation and should be fine with your assets. Meaning you won't spend through your assets before you're deaf. Now this couples rate is over 10%!
I have a tough job because it is their money, and they have the right to spend it how they want. But I have to always counsel them that they are spending too much, and we would recommend lowering their withdrawal rate. The last time I spoke with them they said they'd look at their expenses and try to reduce them. So again my complete shock when I found out they took more money out. It was as if they waited until I was out for a few weeks to ask like asking your dad for candy, cuz you know mom will say no.
But this isn't just an issue with this couple, it is a huge problem for everyone and retirees especially. When you are retired you don't have the luxury of being able to save your money or postpone your retirement. You don't have time to make up for investment losses or save more money. You are on the other side of the fence and taking money out. What happens when your investments go down while you are taking money out. You guessed it, you're depleting your nest egg at a much quicker rate than you probably thought or planned. You'll have less invested if and when your stocks or bonds go back up in value. This all means you'll have a much harder time replacing those losses if you can replace them at all.
So how to you prevent depleting your money and destroying your happily ever after retirement? Here are a few things to start doing immediately!
1. Before you buy anything, ask yourself if you needed it yesterday. If the answer is no, don't buy it! Wait a day or two to see if the purchase would of been an impulse buy.
2. Live as far below your means as you can and still live comfortable. It might take you some time to figure out. Do you really need that 3,000 square foot home or can you live in 2,000 square feet? Do you need the latest luxury car or can you do a lower model? Do you need a vacation for each month of the year? Probably NOT!
3. Pick the areas of your expenses that are important to you. There should only be 3 or 4, and they will be the ones where you can spend money on. The other areas stop spending so much money on! I can care less about manicures and pedicures. I'd rather spend my money on clothes than on my nails so I always do my own nails. I'd rather invest in my house than on trips to Europe.
4. Go through your last credit card and bank account statements and pick a few items to stop spending money on. You might not even remember spending money on certain items. If this is the case, which is probably is, then those items you don't get much satisfaction on buying so stop buying them!
5. If you are like me and go in to target/home goods/ etc and spend money on stupid shit, then start shopping online. I buy our household and toiletries on amazon and Walmart.com. They show what I purchased last time so all I have to do is add it to my cart again and check out. No going through the houseware aisles or clothes racks and adding stuff I don't need! Plus it saves me time and money from saving a trip in my car. It all gets shipped for free.
Don't feel tied down by your expenses each month. Is overspending really worth all the stress and anxiety it causes you. Are you terrified each month to look at your bills? Then start implementing these 5 tips and start loving your life and money.