Friday’s jobs report, while moderate overall, still exceeded estimates. Continued strong employment levels overall make it less likely that the Federal Reserve Bank will be lowering rates any time soon. The markets reacted positively to the economic data, with the S&P 500 up over 1% last week.
One of the biggest challenges we face as financial planners is turning retired clients from ants into grasshoppers. It’s also the most fun we have. Many retirees have spent their entire working lives living below their means and saving for retirement. And when they retire, the paychecks stop. It can be frightening, wondering how you will live without a steady paycheck. And, given the frugality that enabled them to retire, it’s even scarier to start spending their hard-earned savings.
Working with a financial planner can provide peace of mind around spending levels in retirement. It’s not just the monthly bills you need to worry about. Increasing health care costs, expensive dental work, vehicle replacements, and home repairs need to be factored into your budget. And the possibility of long-term care. Then there is concern about the stock market. A financial planner can work with you to identify potential future financial needs, and then stress-test your portfolio.
The problem we face as advisors is not the planning. It’s flipping the switch in clients to help them feel comfortable spending after a lifetime of saving. And while we don’t encourage reckless spending for the sake of spending, there are three big areas that many people find worth the money.
The first is travel. That’s one of the most common goals we see for retirees. Work with your advisor to establish a specific travel budget. Then use it. One of the worst things we face is when clients aren’t able to enjoy their retirement because of health issues. If your budget allows, splurge on upgraded flights. Or a behind-the-scenes tour. You’re probably not going back, so take the excursions, have dessert, and treat yourself.
The second area for spending is giving money away to family and friends. Again, if your budget allows, why not help your adult children now, rather than waiting to die and leaving them money when they are financially comfortable? Helping with retirement savings, grandchildren’s expenses, home purchases or repairs, can make a huge impact, and you’ll be able to see the results.
Finally, giving money to causes that you believe in can bring joy and purpose to your life. Many clients have philanthropy budgets. This can be in the form of Qualified Charitable Distributions, where you give money direct from your IRA to a charity after 70 ½, making gifts of appreciated stock, or just donating directly to an organization whose work you value.
While it’s still important to live within your means, for many retirees, that budget may be well above what they spent during their working years. Having a plan and spending guidelines can help retirees use their savings to improve their quality of life. When encouraging my dad to spend his money, I often said I wanted him to die with ten dollars in his pocket, so that he didn’t die broke. And he would reply he was planning on writing a hot check to the undertaker. Something to think about.
Your action item this week is to move excess cash to a high-yield savings account.
Check out our website at covingtonalsina.com, or our Facebook page, for more information and our upcoming educational events.
CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.