David Kennon, Kennon Financial
For loyal readers, at this point, I think I have made my position on retirement planning pretty clear.
1. Many retirees are not spending enough money during retirement.
2. An inordinate number of people are dying with more money than they’ve ever had before.
3. I believe you should spend 5% of your retirement savings on an annual basis starting the very first year of retirement.
4. Make sure the money’s working for you. If you have all your money earning .01% in a checking account, my advice does not work.
Usually, I discuss the power of using stocks and bonds to keep your money working for you. But I can’t ignore the fact that some people do not have the risk tolerance for ANY temporary losses in their accounts.
So today’s lesson is aimed at the ultra-conservative investor. The investor that is willing to give up the opportunity for significant gains, in order to keep their money guaranteed and safe. I don’t want you to have the impression that the “Spend More, Worry Less” movement doesn’t apply to you.
Even to these people, I proclaim: “It is still ok to spend the money the money is making.”
Let’s do some simple math.
You are 65 years old with $300,000 in your IRA. You put the money in a 5 year CD at a local bank. As of this writing, the best rate I can find on a five year CD is around 3%.
That means, each year you would make about $9,000 in interest.
My suggestion to you? Spend the money.
Even if you are not investing your money in stocks and bonds, it is still okay to spend the interest your money is making.
My grandfather (Papa) was a dearly loved elementary school principal. He retired in the 1980’s with a modest teacher’s pension. Papa never made more than $40,000 a year during his working life.
Papa lived a full and satisfying retirement all the way up to 89 years old. He was a great man, and still terribly missed.
Anyway, here’s the story. We were going through his legal documents and financial statements after the funeral. We were rather shocked to discover that this very simple, humble man had somehow died with $900,000 in the bank.
As were searched through bank statements we made a startling (and typical) discovery. Papa had never stopped saving. Every month of his life, up to and including the last month, Papa scrimped and saved and spent as little as possible. I imagine he was quite proud that he was able to continue saving once retired.
When my Mom and my aunt learned of the money they remarked, “Why would Dad save all of this money? He and Mom could have done a lot more with it themselves. Of course, we appreciate this inherited money, but we wish they had spent more of it on themselves.”
Papa was a teenager during the Great Depression so his views on savings and money were deeply ingrained. After several failed attempts, I have discovered that it is almost impossible to convince someone who was alive during the Great Depression to spend any of their money.
But your retirement doesn’t have to look like your parents! You are going to reinvent and reimagine what this new and exciting stage of your life looks like.
You are going to have the attitude of, “I am not going to live in my fears. I am going to put a sensible plan together, and then focus on what I should be focusing on. Living my most awesome retirement possible.”
David Kennon, Kennon Financial