No plan Sam. That was me, I felt secure in the size of my my nest egg. It was the biggest amount of money in one place I had ever seen. I did not consider that I might be missing part of pieces to my financial puzzle. That I couldn't possibly have known, without professional planning and support. No matter the size of your nest egg, a well thought out budget and financial plan ensures you never run out of money.
The emotional attachment to my nest egg was pretty strong. I thought I had done my work, thought things through. Not true. Not by a long shot. What I forgot was that I was no longer putting money into the retirement pot. I withdrew more than my investments earned for me. Plus, it is remarkably easy to overspend, even if you are disciplined spender. Which I wasn’t.
A million dollars seems like a lot of money. Most of us have never even seen a million dollars in one place. It seems like a large number. Trust me, a million dollars can easily breed a false sense of security.
I Didn’t Understand the False Security of Large Numbers
$1,000,000 will only get you so far. I was shocked how easy it was to spend a lot of money. One innocent spending decision after another, over the course of a year or decade can add up quickly. Before you know it, poof the money is gone.
When I retired I felt like a kid in college. It was party time! Well kind of. My parties looked more like travel on a whim, vacations, relaxing and doing what I want, when I want. I thought I was in pretty good shape.
Despite our relative affluence, we baby boomers tend to be short-term thinkers. We are survivors. We grew up with parents who were careful and cautious spenders. We believed we could have it all.
There is the trap door. The unwillingness to compromise. No one “has it all”. I made shirt-term decisions which supported my “I want it all”attitude. I didn’t think I was going to live long enough to retire. Unknowingly I traded my retirement security to ensure I got my immediate needs met. Damn the torpedos, full speed ahead.
I knew I couldn’t retire forever. I would still have to work. Except I didn’t realize how much all the small innocent, spending decisions would add up. Then I ran out of money. Oops. It became painfully obvious I would need to UN-retire.
Retirement Dream Death by Thousand Spending Decisions
You’ve heard of death by a thousand papers cuts? One of the greatest threats to living in retirement are the thousands of spending decisions we make. Over time they can have a cumulative effect. You end up watching your retirement dream die.
For example, let’s say you decide to do a “quick renovation,” take an exotic vacation or two and you decide to help the kids. After all you have a $1,000,000 in the bank, right?
Subtle Impact of Spending Decisions
You spend $40,000 on a quick renovation to your home. You take a couple of longer exotic vacations at $12,000/each. Then you decide to help the kids with a down payment for a home to the tune of $50,000. Generous right?
Add in a budget for a comfortable lifestyle. $70,000/ year X 12 years = $840,000 or $3,850 per month ($5,800 a month before taxes, less 33% tax.)
That’s $954,000 in expenditures in 12 years, leaving $46,000 to live on. How long will that last? The only way this plan works is if you die or win the lottery in year 12. I think you’d agree that the $1,000,000 retirement account balance doesn’t look so secure anymore.
I realize that this story doesn’t take any investment growth into account. The purpose of this story is to make a point, a $1,000,000 is not that much money.
Good news! Your health holds out. Statistics state you could live 20-30 years after retiring. Looking at this modest example you will need more than a $1,000,000.
Attempting to make the $1,000,000 scenario work will limit your options and run out of money. Either you have to become a miser (which is not realistic,) delay retirement and/or save a lot more money.
Or you could get a financial plan.
Otherwise your money might run out before you do. None of these are palatable options.
There are many great reasons you should consider a financial plan. The best reason? You can make mistakes on paper instead of with your money and time.
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