Retirement Preparedness: Save Forty Years then Spend Forty
February 28, 2011Think about it. We work for forty years of our lives starting from our early twenties to sometime in our sixties. Then we have to support ourselves for the rest of our lives. In other words, save for forty then spend for twenty, thirty or even forty years depending how your cards are dealt.
In my case, the longevity hand I was dealt isn’t the strongest. Both my mother and my maternal grandmother passed away from cancer at age 71. When I do my planning, I feel pretty solid with using a life expectancy of age 80 since I take good care of myself: take my antioxidants, pet my dog and exercise regularly. My retirement plan is to save for forty and spend for twenty.
Many people have better genes than I do and will need to support themselves for longer – in other words, save for forty and spend for forty. There are two main strategies to make this work: increasing income (by saving, investing and maximizing pension income streams) and reducing expenses. In retirement, both are vital but most people focus only on the first part. You certainly can’t retire without an income stream but by reducing expenses, you can make that income stream last much longer.
Consider ways to keep your overhead low in retirement in order to make your money last a lifetime. Here are some important considerations:
Pay off your house or reduce your housing costs.
Some friends of mine who are about to retire just mentioned they wanted to buy a bigger house so they could have all their kids and grandkids for the holidays. I thought to myself that getting a 30 year mortgage at age 65 would mean my friend’s house would be paid off when he hit the ripe old age of 95. The payment wouldn’t be the only expense that would increase: property taxes, insurance, and utilities would also go up. Problem solved when we came up with the idea to rent a vacation house each year for the holidays and go ahead and pay down their mortgage. This way they are reducing the biggest monthly expense they have and then they can afford to have incredible family gatherings!
Stretch out your high ticket purchases.
My colleague, Michael Smith wrote about the real cost of car payments in his blog, Car Buying: A Way to Save a Fortune, and he talks about how he has a personal challenge to drive his vehicles for 300,000 miles and saves the difference for retirement. Michael supposes that by stretching out car purchases during your working life allows someone to actually retire 5 years, maybe even 10 years earlier. Consider the same strategy in retirement so your income can last 5 years or maybe even 10 years longer.
Pay off credit card debt.
Don’t need to say too much here. Most people know that carrying this kind of debt is dead weight – takes from your budget but doesn’t give anything back. However, almost 50% of households between 55 and 64 carry a balance according to the Federal Reserve’s Survey of Consumer Finances. This is just one of those things that’s a “need to do.”
A friend of mine called me last week to let me know that she had just made her last house payment: her house is now paid off! I invited her over to celebrate but she can’t. She is in Rosarita, Mexico for two weeks and she can afford it without that big payment hanging over her head every month. She can do a lot more traveling and she can also breathe a little easier knowing that her money will stretch a lot further for the next forty years.