One of the top mistakes most retirees make in retirement is not adjusting their new lifestyle to their new income level. Most times, the new income level will be less than what they earned during their working years. Should these retirees continue to spend as they did before they retired, it won’t take them long to run out of money.
Retirement mistake #1: Succumbing to the post-retirement spending spike
This comes as a big surprise to many retirees – they spend more, not less, in the first few years after retirement. “We call it deferred spending, or the ‘Whee, I’m free’ factor,” says retiree Ellen Gerson of Florida. “We see all these folks retire and start doing all the things they were dying to do, from traveling to golfing to fixing up their houses. A year or two later, they look over their budgets and they’ve gone way over.”
Overspending in retirement by not facing your income reality can lead a retiree to run out of money in their later retirement years. Keeping too many cars, moving at the wrong time, underestimating medical expenses, putting savings in the wrong places, keeping services you no longer need, downsizing too soon or even retiring too soon; by not having a retirement plan can all lead to your underestimating your future costs of living. (click here for more info)
True Confessions Here: I used to be a spendthrift. In my younger years, I used to get into a lot of spending troubles. I was always overdrawn at the bank, racked up tons of uncollected fees, bounced checks, tapped out every single charge card I had, spent every single penny I ever got. What changed me? Who said I was cured? I still have a spending problem but at least now I can control it. Again, what changed me? When my car was repossessed. I missed one payment and the repo man gave me a visit. It was all very civilized but I realized I was renting my lifestyle. I actually didn’t own a thing. I decided right there and then to change my life and become fiscally conservative. The memory of that repo man in my kitchen brings me back to reality any time I think of faltering.
My transformation wasn’t an easy one. It took me several years of kicking and screaming to finally live a life I could afford. I remember when I finally got off credit and switched to a cash-only basis, there was a blouse I wanted to buy. I didn’t have the money to buy it, so I couldn’t buy it. I was astounded that I couldn’t get that blouse. Later on, when I could afford it, I never did get that blouse. Because I realized the stupidity of that blouse. I didn’t need it.
I made the switch from wanting to needing. I only purchase what I need.
I live a life now based on what I can afford. I live in a paid-for house of only 1120 sq ft because that’s what I can afford. I own low-key appliances because that’s what I can afford. I drive a paid-for 2013 vehicle because it’s safe and affordable. I only own enough clothes to get me by. Nothing more. Nothing less. I wouldn’t call my lifestyle ‘minimalism’. I most certainly, however, wouldn’t call it abundant either. I have enough.
Thankfully, I have mastered the fine art of budgeting. I am mindful of the finances that come into my life. I am even more mindful of what expenses go out of my life on a daily basis. I haven’t overdrawn any of my accounts in over 18 years! No more late fees. No interest charges or finance fees. No more overbalances or over extensions. I pay my bills before they are due. If my phone rings now, it’s either a friend or family calling to say hello. Never a collection agent. I’m no longer afraid to pick up my daily mail. I’ve gone from a 500 FICO score to an 800 FICO score. Brokerage agents are my new friends. When I talk about money now, it’s about how much money I have. Not what I owe.
If I wanted to buy a blouse now, I could buy 20 of them, for cash!
It’s very satisfying and rewarding to know hubby and I are living a retirement life we can afford. It’s comforting to know that when we vacation we won’t come back home to a stack of bills. If we need to cut back on something, we discuss it and mutually agree on a decision. We never feel deprived because we live a life of comfort. A/C in the summer. Adequate heat in the winter. Plenty of food on the table. An RV for local travel adventures. A paid-for home, paid-for cars, a comfy bed to sleep on each night, running hot water, clothes on our back, high-quality medical care……..all affordable.
We made a plan and follow it. Take off the rose-colored glasses and plan realistically for contingencies. The more specific you can be in anticipating what your future life might look like – and cost – the better you can plan. And be.
Live well and prosper, my friend. Live well and prosper.
Side Note: I’m not going back for that $40-$50 haircut. It was a one-time thing. I’m back at Super Cuts @$16 (with tip). It was nice while it lasted but I’m over it.