They say you can’t take it with you when you go, but according to a study from the Federal Reserve, a lot of people are trying to.
The study pointed out a mind-blowing statistic: Folks in their 60s have more money than those in their 50s. The same is true for people in their 70s versus in their 60s. And those in their 80s … yep, more than when they’re in their 70s. (source) Of course not everyone experiences this phenomenon, but millions of Baby Boomers do.
What does it mean? It means people are continuing to save aggressively throughout retirement, rather than switching over to spending more of it later in life.
What’s more interesting is why people do this. It’s a mindset based in anxiety, uncertainty, and fear. If any of these common thoughts sound like something you’re saying to yourself, consider this your wake-up call.
Bob Lewis thinks: “Sure, I’ve saved up $500,000 for retirement. But I better not spend any of that money unless I absolutely HAVE TO. You just never know what might happen.”
True, you never know what might happen. But what might happen is not what is likely to happen. Don’t live your life in fear of an unlikely catastrophe.
Andy Babcock thinks: “What happens if I have to go to a nursing home?! What happens if I need a major surgery?! If I spend any of this money, I might end up living in a van down by the river, eating from garbage cans, and playing cards with hobos.”
The Medicare maximum out-of-pocket in any given year is $6700. A hospital stay is not going to bankrupt you. The chances of you needing to be in a nursing home for more than 5 years is in the single digits.
Betsy N. thinks: “My parents always taught me: “Never stop saving. Never spoil yourself. Be financially conservative. Never spend any money unless you absolutely HAVE TO. If you start spending too much money, you may end up living on the streets.”
Your parents lived through the Great Depression, the worst possible economic crash of our country. They have every right to be conservative about money. But, here’s the good news: Historically, for every stock market downturn in the last century, the stock market has recovered and then some.
Jackie Dempsey thinks: “I’ve been working with a financial planner for years and he has never even mentioned actually spending some of this money. All he talks about is bonds and stocks and P/E ratios. Honestly, I don’t understand much of what he says, but he is the professional. I think if I understood this more, I might feel better.”
If you don’t understand your retirement investment plan, then it isn’t a plan. Ask questions. Ask follow-up questions. And if you don’t get what you need from your advisor, start looking for a new one.
Karen Schwartzbaugh’s thoughts: “My neighbor just told me about his parents who are running out of money! They lived longer than they thought they would. They just up and ran out of money. I am so scared that might happen to me.”
You can feel sympathy for the people in this situation while still recognizing that isn’t going to happen to YOU. You are going to make a budget, know exactly how much you can safely spend each month, and live an awesome retirement.
Whitney Crabapple thinks: “I saw on the internet yesterday that some Wall St. guy is predicting the stock market is going to crash by 80%. I hate this! Why does life have to be so scary! I guess I’ll have to cancel that cruise. I can’t be running around spending all this money when the economy is about to collapse.”
Whitney and Betsy should have brunch. See above. The stock market fluctuates, but if you look at the data, it always recovers in favor of the long-term investor. Also, stop listening to Wall St. guys.
Bob P. thinks: “Sure, I wish I had spent more money and checked off more boxes from my bucket list. But I just turned 80. I don’t have the energy anymore. I guess I don’t need to worry about running out of money, but at this point in my life, there isn’t all that much I even want to spend the money on.”
Oh, Bob. What about your grandkids? Your church? A charity you believe in? Don’t give up on your ability to make a difference and feel good about how you used your money. No one will ever steward your money better than you. Don’t let your heirs decide what the money is for.
Maria Tran thinks: “Sure, I wish we got to do more fun stuff, but you can’t be irresponsible. I have spent my entire life building up responsible spending habits. I’m certainly not changing now. I’m going to continue to cut coupons, eat the early bird specials, and buy generic cereal. I don’t care if I have the money to spend. It just doesn’t feel right to do so.”
You’re not being irresponsible. In fact, you’ve spent your entire working life being responsible. Now, you can be responsible AND have fun. Make a retirement plan that allows you to safely spend the money your investments are making.
Dave’s Conclusion: If you’ve had some of these same thoughts (and I know you have), you’re walking around with a few misconceptions in your head that could short-change your retired years. Don’t live scared. Don’t die rich.
Remember the central tenets to The Retirement Revolution.
-Get educated. There is no better way than to read my weekly commentaries.
-Put together a responsible plan that outlines your budget needs and sources of income once retired.
-Invest your money in a diversified portfolio of stocks and bonds with at least half of the money in stocks.
-Turn off the financial news and stop checking your portfolio every day.
-Start spending 5% of your retirement savings the very first year of retirement.
-History shows, with remarkable consistency, that your money will last. Focus on living your new retired life with a sense of empowerment and confidence.