What does typical retirement spending look like? Many people are calculating
retirement spending all wrong. Retirement planning is an extremely important part
of your financial planning. I would argue it is so important that proper planning can allow you
to spend more before you retire and spend more during retirement without worry!
Stick around and I will explain how people typically spend money in their retirement
and how to plan better.
Hi there, Colin Exelby, here, I’m a Certified Financial
Planner professional and I provide financial planning for business owners and their families
that just makes sense. I own the financial advisory practice Celestial Wealth Management
and provide advice virtually to clients all over the country.
Most people have blindly accepted retirement planning assumptions that are so basic they can
cause you to oversave and underspend and may cause some of the anxiety people have
around money.
Did you know that the way most people spend money in retirement doesn’t resemble the
typically seen ever increasing straight line from the lower left to the upper right
I have been providing retirement planning services for over twenty years and I observed
something quite different. You see, retirement spending actually looks more like a smile.
When you first retire, you often will spend a little more than you anticipate.
Many retirees spend the first few years of
retirement doing all of the bucket list items they wanted to do while working
and raising children but they didn’t have the time.
Traveling, buying a vacation home, buying a motorcycle, home renovations, and buying a boat
are some of the things I have seen retirees buy in the first few years of retirement.
Then, as those items get crossed off the list, annual spending typically begins to decline. For
retirees with children, grandchildren are often born and more of retirement is spent through time
with the family rather than spending money on bucket list items. Often spending time with family
is less expensive and you can have a significant reduction in retirement spending.
But costs typically do rise significantly later in life as more money is spent on healthcare. As we
get older, things don’t work as they used to and more and more trips to the doctor occur. And,
as we age, we may need assistance to do the things that used to come naturally. This rise in
spending can include increasing care from in home to assisted living to nursing home care.
Let’s head over to the whiteboard to take a look at what this might look like in a sample financial
plan. In my opinion, when creating a financial plan,
as much focus should be placed on the retirement spending pattern as should be sent upon the
savings strategy. One of the hardest things for retirees to do is actually spend money
in retirement. The fear of running out of money is real,
but good financial planning can help you feel confident in your decision making.
Simplistic financial planning using the straight line expense analysis can cause you to
underspend in retirement. Consider the smile based expense approach when configuring your
retirement withdrawal strategy. Of course, there are a number of great ways to
help protect your nest egg from healthcare costs later in life. Triple tax-free health savings
accounts, Long-term care insurance, and life insurance with death benefit acceleration
can all be extremely smart ways to help you live a comfortable retirement.
Good financial planning is always a work in progress because we are dealing with incomplete
information. We don’t know what future rates of return,
inflation, expenses or taxes will look like. The good news is that you can always course
correct. Ongoing monitoring of your financial plan can keep you on course for
a successful retirement. Get started by downloading my new ebook,
Accelerating Your Path Toward Prosperity. I’ll provide a link to it in the notes.
So what do you think? Is the smile approach a better way to look at retirement expenses? Let
me know in the comments. Do you have thoughts or comments on how to optimally do it? I
would love for you to put those in the comments. YouTube loves engagement and I want to
hear from you. If you enjoyed this video, make sure to give it a like and of course, smash that
subscribe button and hit that little bell so you know whenever I release a new financial planning
video.