Being ‘money aware’ in retirement will pay off
Having recently released my most recent blog “Why people spend on annual holidays rather than save for their retirement” I believe it would be great to expand further on the Retirement “awareness” with being “money aware”. There was a time that when people retired, everyone was expected to then go on a world trip or a grand cruise. After returning, they would then sell off the neighbourhood home and move to a country like Spain and live out their later days at the beach, park or community centre playing card games, all the while spending their retirement funds on a new car, travel, clothing, and doling out money to all the relatives. It’s perhaps a nice dream for everyone involved, but for many people it is hardly anything close to being sustainable or indeed sensible. Yet so many people still try to ‘make it all happen’ in their first few years of retirement and then find out they have significantly reduced funds – often forcing them to go back to work.
Of course, I’m all in favour of having an active, full, enjoyable retirement – this is why we work and save hard during our working lives – so holidays and treating the grandchildren is, naturally, a good, positive part of retirement. But we also need to be careful not to blow a considerable part of our funds all within the first few years. The accumulated money needs to last.
There are a few key reasons for this:
- People are living longer – Thanks to the wonders of modern medicine, many people are living far longer than average age expectation and far longer than average retirement accounts can fund. 30 or 40 years ago, people generally lived about 10 years after retirement and passed away. So accounts didn’t have to be very big. Now individuals are living into their 90s, being kept functional and alive by better medicine, better treatment, and better nutrition. That means the money has to last longer too.
- Inflation and cost of living keep increasing – There is no question that to buy the same food, utilities, and shelter 20 years from now will cost far more than it does today. For those expecting to live on a limited income in the future, this factor has to be taken into account. Inflation constantly eats away at buying power every year, and retirees feel it the most.
- Don’t bet on government benefits – While senior benefits do still exist, they are weakening and losing value quickly. What used to be somewhat reasonable to live on in many areas isn’t enough to survive on today, even at a minimum wage level. In the next few decades, these benefits will likely shrink further, reducing their effectiveness for seniors.
- The cost of healthcare is rising – With that march towards better technology in medicine, there’s a price tag. Insurance companies and healthcare providers are raising their prices to cover their operating costs and profit margins. That will contribute to more expenses for seniors in retirement, particularly in the area of pharmaceuticals and surgery.
Retirement funds should be a financial cushion; they should provide individuals with security and peace of mind for their entire retirement. Most major studies show that working with a professional, independent financial adviser to devise a tailor-made, long-term strategy is the best way to ensure financial freedom in retirement.
Blog published by Mike Coady.