VOL. 132 | NO. 35 | Friday, February 17, 2017
Rays of Wisdom
Dana and Ray Brandon
Retirement Spending Budget
BY RAY AND DANA BRANDON
Ray’s Take How much you spend from your retirement savings from year to year is arguably the most important piece in the retirement finance puzzle.
Before developing your spending strategy, you should understand an important overarching philosophy: You can’t control financial market fluctuations. You can only control how much risk you take, how much you spend and how to adapt. When you stay invested during retirement, there will be times when market volatility makes it feel like you’ve lost control. Maintaining a plan can help rein in this feeling.
Budgeting is a lifestyle. Like any other habit that is good for you, the more you practice it, the better you get at it. The most difficult part is getting started. But rest assured, it will become easier over time.
In retirement, things keep getting more and more expensive. Some of the items you buy each day will cost more based on the regular inflation rate. But other things, like health care, long-term care and major household repairs can increase significantly each year. Planning and saving are the best ways to prepare for these expenses.
Few people plan their monthly expenses. Worse, many people guess and are off by thousands of dollars. Additionally, people tend to think they will spend less in retirement, when they will probably spend even more, especially during the early phase. One of the best approaches to the process is to plan three different budgets. One for average years. One for “bonus” years when everything goes right. One for the “lean” years when nothing does.
Don’t wait until after you’ve retired to deal with changes to your financial circumstances. One helpful way to estimate expenses in advance is to review bank account statements for two years. This way you will catch one-off expenses and gift expenses – two things many retirees don’t think to include when planning their budget. With respect to retirement planning, you need to know what is going out the door each year.
Dana’s Take My mother is a great example of living well post-retirement on a fraction of her working-life income. What’s her secret? Besides great health, an adventurous spirit (and a younger boyfriend), she keeps her monthly overhead low so she has more cash flow left for travel and discretionary spending.
Years ago, my mom gave up a suburban house for a two-bedroom, two-bathroom apartment in town. Does one person need much more than that? Also, she’s kept the same car for 10 years or more. As a result of keeping her monthly expenses down, she has taken her grandchildren on trips in the U.S. and abroad, taken European cruises, driven across France and has more trips in the works.
Living within your means post-retirement is crucial, but living well within your means is even better.
Ray Brandon, CEO of Brandon Financial Planning, and his wife, Dana, a licensed clinical social worker, can be reached at brandonplanning.com.