Now that you are older and wiser, are you concerned you will outlive your money?
Do you find that your IRA, 401(k), and/or pension payouts are not enough to reasonably sustain you? What about your monthly Social Security check? Do you notice that even with all the scrimping and saving you did as a young whippersnapper, you now spend beyond your means?
If so, you are not alone.
According to a survey conducted by Indexed Annuity Leadership Council, 25 percent of Americans are worried they will outlive their income.
Perhaps, like many other people, you didn’t prepare for your golden years as well as you probably should have. Maybe you invested well, but then—right out of left field—you lost big in September, 2008, when the stock market crashed. Perhaps your nest egg was completely depleted or it took you up until now to recover . . . or maybe you haven’t recovered from the loss.
Unfortunately, first world problems happen all the time, and we Westerners need to always be prepared for the fiascos of Wall Street. The economy is constantly changing and the stock market is a total crapshoot; it’s not easy to keep up with the signs of the times. (It’s even more trying to keep up with the Joneses.)
There are ways to recover, however. But before we get into the details of money management in retirement, take a moment to answer these questions: When it comes to your money mindset, what pops into your head? Are there any limiting beliefs up there?
If you have self-limiting beliefs around money, bring them into your current awareness. They’ve most likely been lodged inside your brain since you were a child. What you may not realize is your belief system is programmed by the outdated thoughts of your former self; and they are no longer valid.
It isn’t where you came from; it’s where you’re going that counts.
Perhaps in the past you felt guilt, remorse, anger, or fear about money. Maybe you still do and that’s why you’re reading this; but none of those negative emotions need be true of your current situation. In order to transform your financial health, you are going to have to retrain your stubborn, old brain.
Please feel free to use the comments section below to share your answers and/or your visualization experience with the NeuroGym community.
Now that you know what your Future Self is up to, it’s time to return to the present moment and get back to work. Are you ready to figure out what you have and what you need in order to make your dreams a reality?
When it comes to retirement there’s a lot to it, and the adjustment may be challenging at first. It may feel scary knowing that you no longer have a steady stream of income from your job . . . and will instead be tapping into the money you’ve worked so diligently to save. But instead of feeling remorse or guilt about the past or anxiety about the future, it’s the perfect time to keep things positive, and do some serious research.
You are going to have to do your arithmetic before you can develop a good retirement plan of action. If you haven’t already, do the research on how to budget, manage, and invest your money wisely. This may require you to develop an entirely new skill set. You have time to read now that you’re retired, right?
In other words, don’t just depend on a financial planner or advisor . . . learn how to take control of your money on your own. (If you do want to hire a professional make sure you find one who has your best interests in mind, and works on a fee-only basis. This may require you to interview several candidates.)
Once you know everything there is to know about how not to run out of money before you’re ready to take your last breath, give yourself a list of action steps, i.e.:
When it comes to your financial well-being, you’ve got to be completely honest with yourself. It’s important to get clear about what you need and what you need to do. You must know exactly how much money you have and exactly how much you spend.
The first step is to figure out your actual net worth. To do this, you may want use a retirement calculator. (They are especially useful if you are newly retired or about to retire.) Here are a few (with good reviews) to choose from. The calculations may be a reality check on how much you currently have to spend over the course of your lifetime.
The T. Rowe Price Retirement Income Calculator is a good one for those of you already in retirement. All you have to do is enter your income sources such as Social Security, pensions, brokerage accounts, annuities, assets . . . and it projects the likelihood that your current plan is sustainable through life expectancy; it even provides suggestions (such as reduced spending) to maintain your current situation.
There is no point in saving if you have debt. If you have a current balance on any of your credit cards, you need to do everything possible to pay it off. If you want to buy something, you cannot view using your credit card as an option.
You may be dying to buy that $1,400 telescope, and that’s fine, but budget for it and save for it and pay for it with cash that you actually have. Paying more interest on your credit cards than you are accruing in your savings or brokerage account is ludicrous, and can be detrimental to your retirement.
The more rigorous debt payoff method you implement the better. Every dollar you manage not to throw away builds your skill at saving money and learning to spend it more efficiently.
Anna Newell Jones, author of The Spender's Guide to Debt-Free Living: How a Spending Fast Helped Me Get from Broke to Badass in Record Time, was a major over-spender (her family had $100,000 in debt!). Luckily, they were able to overcome financial strife by making a plan and taking immediate action. Anna explains how they did it on her blog, And Then We Saved.
If she can do it, so can you! You can pay off your debt. And it is imperative that you start today. Pay off your credit cards and move on . . .
After your credit crisis has passed, you should start stabilizing your finances. Most importantly, your spending should be less (preferably much less) than your current income. Bankruptcy expert and current U.S. Senator, Elizabeth Warren, outlines in her book, All Your Worth, that 50 percent of after-tax income should go to your needs; 30 percent should go to your wants such as clothes, travel, eating out, and entertainment; and 20 percent should go to savings.
Get balanced with what comes in and what goes out.
This 50/30/20 budgeting structure can serve as a foundation to build up your retirement fund for the lifestyle you want. There are plenty of other budgeting systems that typically share the same goals: to help you move away from living check to check, payout to payout—vulnerable to every little economic setback.
With your incoming and outgoing numbers in front of you, create a balanced budget spreadsheet online in Google Drive or on your computer in Excel. Another option is to find and download a budgeting app to help you manage your money, if you’re into apps.
If you still have credit cards at this point, use them lightly or only in case of emergency. Do not, however, use them to build up debt again. You should pay off your cards in full every month, since carrying a balance does not help you save.
Once you’ve gone through your budget, look at it as a sort of wake-up call. Most people should be saving at least 10 percent of their income and putting it into various retirement and/or savings accounts. If you’re not doing that—or even if you are—you need to look at this budget to see where you can do a better job of cutting back on spending and adding to your savings.
You may have lost big with investments or made mistakes in your youth that have left you with the bare minimum, but that was the past . . . this is now. It is time to come to grips with what is.
If you discover you have no place to cut back, you’ll have to look long and hard at the big-ticket items on your budget: mortgage/rent and/or car. It may be time to downsize and opt for new living arrangements and public transportation.
You’ve probably heard this advice, “Spend your money wisely.” Well, now that you are retired or near retirement age, you have to be completely in charge of how you spend your money, if you want to live comfortably within your means. And you need to be totally in control of any impulsive spending and/or compulsive spending.
This cannot be emphasized enough. If you shop online, use PayPal instead (a free and secure way to make purchases). Just link your bank account to your PayPal account, and the purchase price will be automatically deducted from your account. And as tempting as it may be, don’t use the $1,200 in PayPal credit. That money doesn’t exist.
Cash may become obsolete in the future (as it is in Sweden), so enjoy it while you can! When you go out into the world, take the cash you need to make your planned purchases. Going grocery shopping for the week? Take a few twenties with you, and leave your debit and credit cards at home.
Don’t wing it. And especially don’t leave home without a list if you’re hungry. Actually, try to avoid going to the grocery store unless you’ve just eaten your biggest meal of the day. Figure out what you want to eat ahead of time and make your corresponding list. Stick to it! Don't buy on impulse.
You are probably going to get a better deal somewhere other than Whole Foods or Lazy Acres. Shop around and find healthy, organic food . . . that is actually affordable.
This will require discipline, but you must train your brain to ignore promotions that seem too good to be true. Your only considerations should be whether you really need it and if the price fits within your budget.
Empower yourself to overcome overspending! Your retirement lifestyle depends on it. If you need more encouragement in this arena, try this Innercise that uses proven psychology and the latest advancements in neuroscience to help motivate you to put your goals into action. And with repetition, it will help you keep the motivation part of your brain alive and active.
Little indulgences add up fast. Here are some ways you can save more money:
This last one may or may not be easy to do. But you have a better chance of being struck by lightning than winning the lottery.
If you spend $200 a year on the state lottery from age 60 to 110, you will have $10,000 less to spend during retirement. And if you put that $10K into a Certificate of Deposit (CD) or other low risk investment account at age 70 (with a 5.2% interest rate), you’ll have just over $20K extra to spend when you’re 90. Then again, you may win the lottery. Gambling is pretty much the same as traditional models of asset allocation; however, neither of these provides what the majority of retirees need: cash flow.
Travel abroad! Perhaps being an expat is in the cards for you now that you are of retirement age. Supposedly, there are places in the world where $200K in retirement savings will last you 30 years. This may or may not be true; it most likely boils down to your lifestyle, but it may be worth checking out.
The cost of everyday living and the price of healthcare are much lower in Latin American and Asian countries. Europe is a bit more expensive, but the housing costs in Spain are still fairly reasonable.
Are you handy, artsy, and/or crafty . . . and wondering what to do after retirement? If you still have it in you, and you want to continue to work, why not start your own business? Creating your own start-up may be just the thing for you to do.
Be wise now that you’re old. Learn how to stop spending so much. You want to outlive your money, don’t you?
Need even more ideas on how to manage and save money for retirement? Read the Budget Diet blog to learn how to cut your spending by $400 a month. It is a great resource for those of you who need to pay attention to every penny. And for an idea on how to productively spend your money, check out this Penny Hoarder flowchart.
For the most part, investing should be viewed as a solo venture. It involves a lot of personal preference, and it takes a long time to learn the language and organize the numbers. Going the route of the bond ladder, deferred income annuities, reverse mortgages, and traditional diversification may be right for you, or it may not.
You have to be the one to figure out what’s best for your financial longevity.
According to financial advisor and planner, Erin Botsford, “Traditional asset allocation models using systematic withdrawals usually work well in markets that are going up, but they can be devastating for retirees in markets that are going sideways or down.”
Botsford believes in what she calls, “Lifestyle-Driven Investing.” She works with clients to help them create their “Preferred Lifestyle” and build a purposeful and strategic investment portfolio where they never have to wonder why they own the investments they own. (The Big Retirement Risk)
Exercise for growth.
Figure out your investment growth over time, work out the interest on your IRA(s), calculate the growth of your CD(s), and estimate how long it will take to save for your retirement or a luxury item with this savings calculator. Use it to figure out how much you need to save each month to meet your money growth goals.
And if you’re done investing in the volatile stock market and ready to throw in the towel when it comes to managing your stock portfolios, good for you.
When we’re young we think we will be young forever. But now that we’re not basking in the glow of youth, the goal is to simply age well and enjoy life to the fullest. The ultimate intention is to live a life that is stress-free and comfortable . . . with a little travel, leisure, and adventure sprinkled in there.
Aging gracefully may mean different things to different people. But we can probably agree on these three goals:
Getting sick costs a lot in time, money, energy, and missed experiences. You can avoid many illnesses by respecting your body and using common sense. Be a healthy elder.
(You have time to go for long walks, bake bread, take naps, and read in the doctor’s office now that you’re retired, right?)
The answer to this question will have to be determined by you alone. You are the only one in charge of your finances and health. Building your knowledge and taking control of your financial situation will empower you. If it feels overwhelming, start by transforming your mindset around money and success; get clear about what you need to do, and take action.
There are many money mindset myths floating around out there. And even though cash flow is considered king, you cannot allow money to rule your life. The goal is to get control over your money, so that you can put it where it belongs: in the background. Remember, you’re taking action so your lifestyle can improve.
Think of money management as something that’s fun rather than stressful. If you have spent most of your adult life worrying about money, it may feel a little strange to let go of your money anxiety, but do it anyway . . . let go and let be.
No more lying awake at night wondering if your Social Security check is going to clear before the mortgage payment. No more torturing yourself over whether you can afford something. You know the answer. If you have the cash, then you can buy it. And best of all, no more wondering whether you’ll get ahead. You have created a solid plan to build your savings, and before you know it, you will be accumulating wealth.
Maybe you are now considered a senior citizen. Elderly. An adorable “cotton head” who gets special discounts on public transportation, movies, and cruise ship travel. But how do you see yourself? What are you doing? Where are you going? Close your eyes for minute and imagine . . .
The sky’s the limit.
Perhaps you are in Pebble Beach playing a round of golf or cruising to Mexico on a chartered sailboat. Maybe you see yourself as the CEO of a microbrewery—built from your beer-drinking hobby, or out bird watching with your children, or volunteering at the Community Resource Center.
It all sounds good, doesn’t it? There are successful retirement stories out there, so why not strive to be one of them? And may you be happy and healthy in your golden years. Go out there and rule your retirement!
Please leave your comments and/or questions in the space below.
Botsford, Erin. The Big Retirement Risk. Greenleaf Book Group Press. (2012).
Goodman, Jordan E. Everyone’s Money Book. Dearborn Trade Publishing. (2002).
Hinden, Stan. How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. McGraw Hill, New York. (2010).
Opdyke, Jeff D. Protecting Your Parents’ Money: The Essential Guide to Helping Mom and Dad Navigate the Finances of Retirement. Harper Business. (2001).
Orman, Suze. You’ve Earned It, Don’t Lose It: Mistakes You Can’t Afford to Make When You Retire. Newmarket Press, New York. (1999).
Quinn, Jane Bryant. How to Make Your Money Last: The Indispensable Retirement Guide. Simon & Schuster, New York. (2016).
Parness, Michael. Rule Your Freakin’ Retirement: How to Retire Rich by Actively Managing Your Assets. St. Martin’s Press, New York. (2009).
Warren, Elizabeth and Amelia Warren Tyagi. All Your Worth: The Ultimate Lifetime Money Plan. Free Press, New York. (2005).
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NeuroGym Team: NeuroGym’s Team of experts consists of neuroscientists, researchers, and staff who are enthusiasts in their fields. The team is committed to making a difference in the lives of others by sharing the latest scientific findings to help you change your life by understanding and using the mindset, skill set and action set to change your brain.