Thoughts on Spending in Retirement
Happy Summer one and all. We are all back in our places for July – Kayla returned from her honeymoon, Mike completed the inaugural Corporate Challenge and I came back from playing with my granddaughters in Nashville. There is nothing like seven and an eleven year-old granddaughters to make you appreciate naps.
Among the thoughts occurring to me, when not playing hide-and-seek, baseball or volleyball is that we have discussed the principles of saving for retirement many times, but we have not even mentioned the other side – spending in retirement. Knowing how much is necessary to save is determined by two factors one controllable and one that is not controllable – how much will you spend in retirement (the controllable one) and how long will you live (the uncontrollable one).
One of the many concepts to understand is that spending in retirement is not a linear graph – it tends to be front-end loaded with deferred expenditures (travel, motor homes, etc) and back-end loaded with health care costs. Many advisors term this as three stages: Go-Go; Slow-Go and No-Go.
The Go-Go period is littered with big-ticket expenditures you may have put-off for some time – vacations, cars, second homes etc. Retirees have to be cautious not allow this pent-up-demand to deplete the savings below an amount pre-determined to be necessary for the remaining stages. Some advisors recommend segregating this Go-Go budget into a separate account, so retirees can easily monitor the balance and alarms should sound before they have to invade the later stage accounts.
Slow-Go years go by quickly. During this time many retirees are more grounded and tend to stay closer to home base. Traveling seems too difficult and naps are more frequent. Plans for this stage may need to consider health care costs for any known ailments such as diabetes or high blood pressure.
No-Go years are burdened with health care considerations and costs. Baby-Boomers by the millions are buying Long-Term Care insurance allowing them to remain in their home or afford the type of facility that mirrors their life-style (you know gyms, pools, masseurs, and maybe a bar). By setting aside specific investments years ago, those kept sacred during the Go-Go years, the value should appreciate to provide a pool of capital sufficient to maintain the dignified care retirees deserve.
We would be please to discuss these concepts with you, and evaluate your portfolios for adequately funding retirement’s life stages.
JACK, MIKE AND KAYLA