Focus:Financial-Your Budget, Set It and Forget It? Forget It!

The planning evolution

Photo by Diane Helentjaris on Unsplash

In past newsletters we’ve learned how to set a retirement budget and why a budget is important. All of that work around budgets and allocations and making sure there’s enough to go around was tiring and distasteful, but now that you have all of that figured out and you know where you want your money to go, you can sit back and relax and enjoy your retirement, right? Yeah… I’ve got some not-so-good news for you. Budgets, like everything else in the planning world, are subject to the changes that life “offers.”

I read a blog that I really liked a week or two ago. It was Russ Thornton’s Weathcare for Women. In it, he says “good is great!” What he means by that is that a good budget (or financial plan, in general) is a great place to start. Perfect plans don’t exist. You put a stake in the ground so you can plan around it, but you have to keep watching it and revising it as you get smarter and life changes, and, by the way, it’s never going to be exactly right - and that’s OK. If it’s close enough to get comfortable with your situation, it’s close enough. One of my favorite quotes about this is from a guy I used to work with in my days in finance. When referring to budgets and planning he said “it is better to be approximately right than precisely wrong.” In other words, get your plan close enough because if you keep working at it to get it “perfect” you’re gonna take a lot more time and ergs and you’re gonna be just as wrong - or maybe wronger than you would have been had you been comfortable with “good.” But, set your budget and forget it? Forget it. It needs to evolve as you do.

OK. This sucks, but what do I have to do?

The first thing you want to do is measure against the budget you set after you retire. How close is your spending to what you thought it would be? That’s easy with a tool like Mint. Hook up your bank accounts and Mint does all the work for you. Actually, your bank may already do all of the work for you. Some banks’ online services automatically assign budget categories to your spending and you can see a summary right on your account summary page. Whatever tool you use, get used to checking how close you are to what you thought you’d do and adjust accordingly.

Got it. Now am I done?

If that wasn’t enough, as we said, life happens. When there is a substantial change in your circumstances, it’s worth taking a look at your budget and seeing if revision is needed. Move to a new town? New budget. Spouse retire? New budget. Get a puppy? New budget. You get the idea. But what if big life events don’t happen? Is your initial retirement budget good enough?

Budgets for different stages

Some retirement folks refer to different “stages” of retirement as the “Go-Go years” the “Slow-Go years” and the “No-Go years.” Budget accordingly…

The Go-Go years are the first 10 or 15 years of retirement, usually. (I’m seriously hoping for at least 20….) For this period of time you may be more apt to GO! Most people tend to be more active because they’re younger and in better health. Spending is typically high during this segment of retirement because retirees are busy traveling and enjoying hobbies they didn’t have time to pursue when they were still working. Therefore, when planning your retirement spending, it may be wise to allocate extra funds if you think you’re likely to be the classic Go-Go type of person.

The Slow-Go years are probably the next 10 or so. During this middle period of retirement, people typically start to spend less money. They may not be so keen on travel, which can be wearing, and they may not feel like pursuing activities that require a high degree of energy. Retirees in the Slow-Go phase may trade in windsurfing and tango lessons for Bingo, grandkids and home cooked meals. This physical slowdown results in a financial slowdown as well for most. If you’re not traveling as much and you’re staying in for dinner, naturally you’ll spend less money.

Finally, the No-Go years are those after 85-ish. You’ll probably see another slowdown in activity during this period, usually with a reduction in social activities and the ability to get around. This time could result in lower spending, or it could signal a spending spike, if you are not able to navigate life on your own and begin to need assistance.

In general, spending tends to go down by about 20% between retirement and age 85 and then it’s anyone’s guess depending on healthcare needs.

Now, again, these are PLANNING assumptions. They are a good stake in the ground. Your mileage may vary. Keep an eye on your spending and life changes and be willing to be flexible!

Is there a silver lining to all of this planning?

There is some good news here. If you are one of those that likes the rules of thumb for budgeting (4% of your nestegg, for instance or 70% of your pre-retirement income) you may be short changing yourself in your Go-Go years. When social security kicks in and your needs change - maybe around 70 or 75 - you may be able to get away with spending less of your hard earned savings, meaning you may be able to allocate more of your nestegg toward living the good life when you first retire. Don’t just spend with abandon, though. Do some homework, look at some scenarios and PLAN.

These are just some things to look at as you put that budget stake in the ground. The LAST thing you want to do is ignore budgeting and planning altogether because it is going to be wrong. Without that guidepost, you could easily be sailing east when you should be going north. It may not be true north, but at least you’re not headed to China.

Help is just an email away

If any of you out there would like help with understanding your current budget and figuring out what some scenarios might be for your future, reply to this email. I’d love to show you some tools and get you started on your way to a “good” plan -which is great!