Jasmine retired in 1995 and over the next twenty-five years she made bad decisions after bad decisions based on a number of misconceptions. In this example, she retired with $500,000 in her 401k and had no mortgage.
I see tragedies like this throughout the course of my job. Let’s see where Jasmine went wrong.
I’m on Medicare now, thought Jasmine. I better be sure to spend as little as possible. What if a have some huge medical expenses? I can’t take that chance.
(What she didn’t realize is that Medicare covers most everything. Medicare, along with a supplement, has a maximum out-of-pocket expense of less than $10,000 each year. She worried unnecessarily simply due to a basic understanding of her benefits).
And you never know, Jasmine thought to herself. I read that Social Security may go bankrupt. What would I do then? I better spend as little as possible to survive.
(Social Security is not going anywhere in your lifetime. I have taught classes on this subject for years.)
Jasmine decided to never turn on the air conditioning unless the temperature hit eighty degrees in her house. I don’t care if I have to sweat throughout the summer. I need to keep my budget as low as possible, she thought.
Her friends asked her out to dinner one night and Jasmine refused. She thought, I can’t just run around spending money. What happens if I need to go into a nursing home?
(I’ve discussed this in the past in depth. It is a very sensitive subject and I feel for all of you who witnessed loved ones go through these kinds of difficulties. After twenty years of exploring this topic, this is the best answer I’ve found: The chances of you having a long-term stay in a nursing home (five years or more) is in the single digits. Do you want to totally alter your retirement plans based on a single-digit number?)
When Jasmine’s daughter invited her on a European cruise, she cringed. My daughter is going to be upset, but I can’t splurge like that. I just don’t have enough money.
About ten years into her retirement, with a nest egg that had grown to $700,000, she started to experience some hearing loss. She met with an ophthalmologist who suggested getting hearing aids.
“We can go with the standard hearing aid if you want. Medicare will cover a lot of the cost. But in your situation, I would suggest getting cochlear implants. It would dramatically improve your hearing.”
Those things are $30,000, Jasmine thought. I would be crazy. I don’t want to run out of money. You just never know when you will need it. So she got the basic hearing aids which only nominally helped her hearing.
(These are the situations where I get pretty upset. At some point, you need to think about what this money is for. If you were responsible enough to save money throughout your life, this is the moment to reward yourself. What else is more important than your own health and physical well-being. This is such an unnecessary sacrifice.)
Then one of Jasmine’s worst fears occurred. Her air conditioner died, and she needed a new roof on the house. She was sick.
I knew it, thought Jasmine. I knew I didn’t save enough money. These are one of those unexpected expenses for which I should have planned.
When the bill for the roof came in at $20,000 she almost fell off her chair. This is horrible, she thought. This kind of stuff is going to keep happening. I’m don’t want to end up a burden to my children.
(I often listen to people lament about medical costs and home improvements. I usually respond, “I don’t want to sound flippant, but just write the check and forget about it. There is no reason to worry. The unexpected will happen, but with a good retirement plan in place, you will have room to cover these costs. It doesn’t matter if you die with $600,000 or $580,000”)
As Jasmine got older it was harder and harder for her to take care of herself at home. She had a very difficult time walking up the stairs of her tiny townhouse. She became somewhat isolated. The only time she left her home was to get groceries (and even then she only purchased things on sale).
Her children encouraged her to go to an assisted living facility. “Mom,” her daughter pleaded. “I don’t like you being home alone all the time. This facility is for people that can still take care of themselves, but at least you will be around other people. Plus they cook and clean for you. I hear the food is delicious.”
The facility cost $6000 a month. Jasmine was mortified. How could my daughter even suggest I go to this kind of place? Is she crazy? I can’t afford that, she thought. So she continued living in isolation.
(These stories are the ones that break my heart. Even as Jasmine’s savings increased, she still couldn’t use the money, even though this is what the money is for.)
Jasmine was now in her late eighties with failing health. As her health declined, she was moved to a nursing home. Every month Jasmine felt nauseous as she wrote the check for $8,000. I’m going to use up all my savings and my kids and grandkids won’t get anything, she thought.
Jasmine passed away shortly after with nearly $800,000 in the bank. The money went to her granddaughter. Unfortunately, her granddaughter was married to a gambling addict. The money was gone in less than two years.
This was a retirement unfulfilled. Jasmine never had the opportunity to create a reasonable spending plan. She live her life scared to death, full of misconceptions that left her lonely living a small life.
Wow. That was a pretty depressing story I just wrote.
On a more encouraging note….
I read an article this week that actually contained reasonable and accurate content. Fidelity investments wrote:
One of the biggest concerns Fidelity observed was that 71% of Americans are worried about inflation’s impact on their retirement planning — and almost one-third don’t know how to make sure their retirement savings keep up.
But this is no time to panic, Assaf says.
“The encouraging news is, rising costs might not be as big a threat to your retirement lifestyle as you may fear,” she told FOX Business.
“One piece of advice for retirement savers and inflation, is to not worry too much,” Assaf said. “Based on what we know about retirees and their satisfaction once they get to retirement, most aren’t spending as much as they anticipated and yet they’re feeling pretty good about where they are.”
“If you have a good retirement plan in place, you should be able to weather these storms, too,” she added.
I love it!