Retirement: Don’t Overdo It

A few weeks ago, Doug did an online search for “top retirement issues.” The results were not surprising and rising to the top of every list was financial issues. In essence, make sure that you have enough to retire on comfortably.

He took away from those articles a plan to expect the unexpected, as many surprises can occur in our 60s and beyond. The following is a quick snapshot of actual numbers for a person retiring.

• Let’s say that Sally is about to retire and currently earns $100,000 a year
• Assume Sally does not have any kind of pension
• The rule of thumb says Sally will need 80% of her pre-retirement income
• So, how does Sally get to $80,000 a year in retirement income?
• Let’s assume her Social Security is $3,000 a month or $36,000 a year
• That leaves a shortfall of $44,000
• If Sally has $1,000,000 in stocks, she will need a 55% return annually or $50,000
• This equation stipulates that Sally does not touch the principle
• This would provide Sally with $86,000 a year

Here are the significant variables that could influence the above scenario:

• Sally will need to receive a 5% return annually. More is better, however, if the market tanks. Sally will have to dig into her principle probably. That means Sally will have to rebuild that principle soon.
• Sally’s most significant variable is her health, as her insurance and Medicaid do not cover 100% of her bills. A couple of unexpected hospital or doctor visits can quickly cause Sally to dig into her principle.
• Children, siblings, parents, and grandchildren can also easily add to Sally’s financial obligations, as family issues can come out of nowhere and cause significant short-term and long-term financial constraints.
• Managing debt can also be a silent killer for many. Piling up credit card debt, in particular, is more common than most of us think. Plus, the costs associated with purchasing a new home or car can also increase debt dramatically.
• Gifts. It is pretty standard for grandparents to want to support their children and grandchildren. This could be money for a house down payment, a car, college tuition, and more. Plus, many people like supporting their church, alma mater, civic organization, etc.

In essence, most retirees live on a fixed income. There are no more overtime hours to count on, quarterly or annual bonuses, pay raises and promotions, etc. And while inheritances from parents or other relatives can happen, it is wise not to count too much on them for unexpected expenses can severely curtail your possible windfall.

Over the years, Doug has seen some retired people forced to make tough decisions regarding their finances. He guesses that they did not invest enough time and effort into laying out their expected and unexpected costs – aka budget. The results ran the gamut of selling their Dream Home and downsizing, moving back home, and getting back in the job market.

You’ve worked hard for 30-40 years, building up a nest egg so that you can retire comfortably. One last variable that can affect your financial stability is managing your ego.

Let’s fast forward to your retirement day, and you have $3.5M with a stockbroker, half a million in your savings, and your $475,000 is paid off. You’re rich, rich beyond your wildest dreams, and it’s time to pound your chest a little bit and let the world know so that you can go on a bit of a spending spree. Sure, you may only spend $40,000 (or more) on a new car, boat, jewelry, artwork, or a trip around the world. But for the most part, that was an expense that is either gone or probably severely devalued the minute you laid down your American Express Platinum Card.

We’ve seen professional athletes for decades sign multi-million-dollar contracts only to find out years later that they have nothing left. Be careful not to allow your ego to ruin your retirement because it can and will. Don’t become a statistic of poor judgment.

When we look back at the slide of 2008/2009, many people said that their retirement planning was sound and they were safe from unknown variables. Let those who suffered so mightily be our guiding lights to live a long and prosperous future! If you’re ready to sit down and find your dream retirement home here on the beautiful coast of North Carolina, we’re here for you.