1 00:00:01,221 --> 00:00:02,624 Speaker 1: Hi, I'm Stacey Hyde. 2 00:00:02,624 --> 00:00:06,451 I'm back with another episode of Better Financial Health in 15 3 00:00:06,451 --> 00:00:09,926 Minutes or Less, and today I want to talk about something 4 00:00:09,986 --> 00:00:14,224 geared more toward retirees, and it's the myth that, because 5 00:00:14,265 --> 00:00:16,911 you're retired, you don't need a budget anymore. 6 00:00:16,911 --> 00:00:22,109 Spoiler alert yeah, you do, but it doesn't have to be 7 00:00:22,189 --> 00:00:24,474 complicated or restrictive. 8 00:00:24,474 --> 00:00:29,882 It's really just about giving your money a purpose, and for a 9 00:00:29,902 --> 00:00:33,063 lot of us, budgeting feels like punishment, something that we 10 00:00:33,143 --> 00:00:36,048 have to do, and we feel like we're getting slapped on the 11 00:00:36,107 --> 00:00:36,469 hand. 12 00:00:36,469 --> 00:00:40,107 If you were like me and sometimes got paddled with a 13 00:00:40,148 --> 00:00:42,366 wooden spoon, it feels like your hand's getting slapped. 14 00:00:42,366 --> 00:00:46,322 But you're retired, you worked hard, you should be free. 15 00:00:46,322 --> 00:00:52,476 Well, but freedom without a plan is just chaos, and you 16 00:00:52,536 --> 00:00:56,484 don't want chaos, because study after study shows that if you 17 00:00:56,524 --> 00:01:01,314 don't have a firm foundation of your financial planning in 18 00:01:01,439 --> 00:01:05,953 retirement, you don't enjoy your retirement nearly as much. 19 00:01:05,953 --> 00:01:10,471 So here's why budgeting and retirement really matters. 20 00:01:10,471 --> 00:01:14,004 Your cash flow in most cases isn't automatic. 21 00:01:14,004 --> 00:01:17,259 Some people are fortunate enough and they have an 22 00:01:17,921 --> 00:01:20,171 old-fashioned pension, but not many people do. 23 00:01:20,171 --> 00:01:26,289 Depending on when you retire, you may have Social Security and 24 00:01:26,289 --> 00:01:28,052 your expenses can still change. 25 00:01:28,052 --> 00:01:31,284 You know, you may take a bigger vacation one year. 26 00:01:31,284 --> 00:01:39,048 You may buy a new car, you may have something big. 27 00:01:39,048 --> 00:01:41,396 Dental expenses, because most people don't have dental 28 00:01:41,456 --> 00:01:42,439 insurance in retirement. 29 00:01:42,439 --> 00:01:44,268 And inflation for a long time we kind of forgot about 30 00:01:44,287 --> 00:01:45,453 inflation because interest rates were so low, because most 31 00:01:45,472 --> 00:01:46,817 people don't have dental insurance in retirement. 32 00:01:46,817 --> 00:01:48,546 And inflation For a long time we kind of forgot about 33 00:01:48,566 --> 00:01:51,885 inflation because interest rates were so low, but now, with 34 00:01:52,506 --> 00:01:55,707 inflation being higher, that is something we have to factor in. 35 00:01:55,707 --> 00:02:00,382 And the thing that I find that most people fail to factor in is 36 00:02:00,382 --> 00:02:03,888 longevity risk the risk of living much longer than you 37 00:02:03,947 --> 00:02:08,342 expect and so you've got to factor that into your budget and 38 00:02:08,342 --> 00:02:10,688 also peace of mind, knowing that everything's covered. 39 00:02:10,688 --> 00:02:15,405 My favorite thing to do as a financial planner is to 40 00:02:15,585 --> 00:02:19,794 encourage my retired clients to spend more money that is so fun 41 00:02:19,813 --> 00:02:23,167 to me because I know they've worked really hard and to tell 42 00:02:23,227 --> 00:02:26,152 them and what I found is when I give them a specific number, 43 00:02:26,259 --> 00:02:27,887 they're much more likely to spend that. 44 00:02:28,659 --> 00:02:32,788 So here's kind of a real simple framework to think about 45 00:02:33,629 --> 00:02:35,373 budgeting in retirement. 46 00:02:35,373 --> 00:02:39,471 You need to look at your fixed versus your variable expenses, 47 00:02:40,201 --> 00:02:43,350 and by fixed expenses I mean things like car insurance, 48 00:02:43,560 --> 00:02:49,811 homeowner insurance, property taxes, cable, internet utilities 49 00:02:49,811 --> 00:02:52,760 , things that you have, no matter what If you have somebody 50 00:02:52,760 --> 00:02:54,806 who cuts your grass, if you have somebody who helps you 51 00:02:54,846 --> 00:02:57,230 clean your home, all of those things. 52 00:02:57,230 --> 00:02:58,713 They're pretty fixed. 53 00:02:58,713 --> 00:03:03,370 And then you also have your Medicare premiums, your health 54 00:03:03,430 --> 00:03:04,633 insurance, all of those. 55 00:03:04,633 --> 00:03:07,052 And then you have your Medicare premiums, your health insurance 56 00:03:07,052 --> 00:03:07,335 , all of those. 57 00:03:07,335 --> 00:03:08,000 And then you have your variable . 58 00:03:08,099 --> 00:03:11,146 And so travel may be something that you want to do every year, 59 00:03:11,187 --> 00:03:13,913 but there's likely a range for the expense of that. 60 00:03:13,913 --> 00:03:19,389 What you spend on gifts for kids and grandkids, your hobbies 61 00:03:19,389 --> 00:03:26,223 whether that's your golf gear and funds for um, greens fees, 62 00:03:26,323 --> 00:03:32,334 cart fees, the latest clubs, um, or if you're like me and tennis 63 00:03:32,334 --> 00:03:34,902 is your thing, you know you got to pay for indoor courts, 64 00:03:35,304 --> 00:03:40,433 racket restringing, new rackets, um, those types of things. 65 00:03:40,433 --> 00:03:45,286 And then you kind of want to look at needs, wants, wishes. 66 00:03:45,286 --> 00:03:51,393 So needs are things that we must pay to live safely and well 67 00:03:51,393 --> 00:03:51,393 . 68 00:03:51,393 --> 00:03:56,465 Wants are things that enrich life, but they aren't essential, 69 00:03:56,465 --> 00:04:01,920 and wishes are the big stuff, the bucket list, travel, gifting 70 00:04:01,920 --> 00:04:04,445 , legacy, those sorts of things. 71 00:04:04,947 --> 00:04:07,792 So what you want to do is you want to match your income to 72 00:04:07,831 --> 00:04:08,492 your sources. 73 00:04:08,492 --> 00:04:14,307 So, to the extent you can, you want to use guaranteed income or 74 00:04:14,307 --> 00:04:18,593 mailbox money such as Social Security interest on your fixed 75 00:04:18,673 --> 00:04:22,869 income, a low portfolio withdrawal rate for those fixed 76 00:04:23,009 --> 00:04:29,071 income, and then you want to use growth in your portfolio for 77 00:04:29,130 --> 00:04:32,004 those higher end things, and this is something we tell our 78 00:04:32,045 --> 00:04:33,209 clients often. 79 00:04:33,209 --> 00:04:38,327 If you work with us, we can help you get things that might 80 00:04:38,367 --> 00:04:41,892 cause your withdrawal rate to be higher than we would normally 81 00:04:41,934 --> 00:04:42,855 be comfortable with. 82 00:04:42,855 --> 00:04:46,870 But we want to do it when markets are up, not when markets 83 00:04:46,870 --> 00:04:52,240 are down, because if we're selling stock or things of that 84 00:04:52,399 --> 00:04:54,622 nature, can you pause that, let me. 85 00:04:54,622 --> 00:05:02,574 So you want to match your income sources to your needs. 86 00:05:02,574 --> 00:05:07,449 So if you're fortunate enough to have a pension or if you're 87 00:05:07,509 --> 00:05:10,802 old enough to be on social security, that's the type of 88 00:05:10,901 --> 00:05:13,648 money that you want to use for your fixed expenses. 89 00:05:13,648 --> 00:05:18,144 If you don't have either of these, then you want to use your 90 00:05:18,144 --> 00:05:19,547 safe money. 91 00:05:19,547 --> 00:05:24,480 This is why we advise our clients even if they are and 92 00:05:24,521 --> 00:05:27,925 have an aggressive mindset, we still think, having funds in a 93 00:05:28,004 --> 00:05:32,750 money market account cash reserves, fixed income that we 94 00:05:32,790 --> 00:05:38,100 have steady income coming in to lay the groundwork for your 95 00:05:38,161 --> 00:05:38,942 fixed income. 96 00:05:39,762 --> 00:05:46,209 And then you can use higher withdrawals for things that are 97 00:05:46,290 --> 00:05:52,415 more non-essential, so your bucket list items or some extra 98 00:05:52,495 --> 00:05:56,990 spending, but things that could be cut back on if markets are 99 00:05:57,031 --> 00:06:00,841 bad and the timing is bad, and you definitely want to have a 100 00:06:00,901 --> 00:06:06,437 reserve fund, or a fund fund, as I would call it, because it is 101 00:06:06,536 --> 00:06:09,973 those little extra things that make life fun and it's the 102 00:06:10,035 --> 00:06:12,663 reason that you worked hard and retired and saved. 103 00:06:12,663 --> 00:06:14,264 You should be able to do that. 104 00:06:14,264 --> 00:06:23,225 But what is an extravagance for one person's budget could be 105 00:06:24,146 --> 00:06:28,072 could completely disrupt someone else's retirement plan. 106 00:06:28,072 --> 00:06:32,300 So you want to look and make sure that what you're spending 107 00:06:33,684 --> 00:06:37,281 and what your needs are versus what your wants are, can be 108 00:06:37,362 --> 00:06:41,651 supported by your savings and your income and your overall 109 00:06:41,672 --> 00:06:42,273 portfolio. 110 00:06:42,273 --> 00:06:47,069 One of the easiest ways to do this is to track your spending 111 00:06:47,129 --> 00:06:50,699 for a couple of months, and you can do that. 112 00:06:50,699 --> 00:06:54,610 Either you can use a spreadsheet, you can use a 113 00:06:54,730 --> 00:06:59,963 notebook, you can go over your bank accounts and credit card 114 00:07:00,004 --> 00:07:04,218 statements and write down if you had used any cash. 115 00:07:04,218 --> 00:07:09,730 And look at it that way, because I promise you're 116 00:07:09,790 --> 00:07:13,423 spending money, that you don't realize it or you're saying that 117 00:07:13,423 --> 00:07:16,952 something doesn't count because it doesn't happen all the time. 118 00:07:17,500 --> 00:07:22,329 Just because an expense only happens infrequently doesn't 119 00:07:22,410 --> 00:07:24,173 mean that you don't need to plan for it. 120 00:07:24,173 --> 00:07:27,401 Probably means you need to plan for it more because you're not 121 00:07:27,562 --> 00:07:29,663 focused on that probably means you need to plan for it more 122 00:07:29,682 --> 00:07:31,303 because you're not focused on that, and so you want to wind up 123 00:07:31,303 --> 00:07:34,906 with kind of a one-page retirement budget and then look 124 00:07:35,045 --> 00:07:39,588 at it quarterly, not obsessively , just periodically, and just 125 00:07:39,668 --> 00:07:41,589 make sure, did what I said. 126 00:07:41,589 --> 00:07:47,432 So you want to create a simple one-page retirement budget and 127 00:07:47,471 --> 00:07:49,779 then, once a quarter, look at it . 128 00:07:49,779 --> 00:07:52,798 Was spending about what you thought? 129 00:07:52,798 --> 00:07:58,113 Was the money coming in about what you thought, and was there 130 00:07:58,175 --> 00:07:58,997 any disconnect? 131 00:07:58,997 --> 00:08:04,081 An easy way to do that is to look at your bank balance. 132 00:08:04,081 --> 00:08:08,461 Is your bank balance growing every month, which that means 133 00:08:08,480 --> 00:08:11,737 you're likely spending less than the withdrawals that you're 134 00:08:11,778 --> 00:08:14,511 taking from retirement accounts plus your Social Security? 135 00:08:15,473 --> 00:08:19,420 But if it's going down, you've got to figure out why. 136 00:08:19,420 --> 00:08:24,396 Was it because you had a vacation that you were planning 137 00:08:24,495 --> 00:08:27,302 on anyway and so expenses were a little bit high? 138 00:08:27,302 --> 00:08:32,745 Did you have some medical care, maybe some prescription drugs 139 00:08:32,806 --> 00:08:34,611 that were more expensive than expected? 140 00:08:34,611 --> 00:08:39,721 Or was it just you failed to account for certain expenses, 141 00:08:39,902 --> 00:08:44,937 maybe eating out, giving money to kids and grandkids, whatever 142 00:08:44,957 --> 00:08:45,219 it is? 143 00:08:45,219 --> 00:08:55,773 You need to figure that out and then revisit, either yourself 144 00:08:55,793 --> 00:08:56,315 or with your advisor. 145 00:08:56,315 --> 00:08:57,639 Have we budgeted correctly, and if I continue to spend at this 146 00:08:57,659 --> 00:08:57,759 level. 147 00:08:57,759 --> 00:09:00,409 Is that going to be okay, or am I going to risk running out of 148 00:09:00,529 --> 00:09:04,596 money before I run out of days, because you really do want to 149 00:09:04,677 --> 00:09:07,140 have a firm financial foundation ? 150 00:09:08,261 --> 00:09:09,965 I say this many, many times. 151 00:09:09,965 --> 00:09:15,620 I love to tell people, yes, but sometimes I have to warn people 152 00:09:15,620 --> 00:09:15,620 . 153 00:09:15,620 --> 00:09:17,403 It's always your money. 154 00:09:17,403 --> 00:09:18,850 You get to decide. 155 00:09:18,850 --> 00:09:25,282 Our job as your advisor is to say this is the direction you're 156 00:09:25,282 --> 00:09:29,789 headed and unless we course correct, you may wind up in a 157 00:09:29,830 --> 00:09:31,313 spot where you don't want to be. 158 00:09:31,313 --> 00:09:35,708 Sometimes people will say, I know, but for whatever reason, 159 00:09:35,729 --> 00:09:39,017 they're going to go ahead and that's their decision to make, 160 00:09:39,076 --> 00:09:43,772 and then we'll try to make it up , you know, if we can, but it is 161 00:09:43,772 --> 00:09:47,660 important to know that you do want to still run projections. 162 00:09:47,740 --> 00:09:51,815 A financial plan doesn't stop because you got to retirement. 163 00:09:51,815 --> 00:09:58,684 It continues because we can't predict markets and run away 164 00:09:58,769 --> 00:10:00,375 from anybody who tells you they can. 165 00:10:00,375 --> 00:10:04,809 We know that over time the stock market has outperformed 166 00:10:04,929 --> 00:10:08,039 everything else, but the stock market can get ugly for periods 167 00:10:08,080 --> 00:10:08,341 of time. 168 00:10:08,341 --> 00:10:12,278 So you want to make sure you've got some safe stuff to get you 169 00:10:12,339 --> 00:10:17,153 through those ugly times, but paying a little attention to 170 00:10:17,253 --> 00:10:21,376 your expenses and your income sources and putting it all 171 00:10:21,418 --> 00:10:25,221 together really will give you the foundation that you need to 172 00:10:25,322 --> 00:10:31,594 have a rock solid retirement plan and to have all the fun and 173 00:10:31,594 --> 00:10:39,469 to to do the things and to be generous and to live well and be 174 00:10:39,469 --> 00:10:41,511 with the people that you want to be with. 175 00:10:41,511 --> 00:10:47,321 So just spend a little time, be be thoughtful and if you need 176 00:10:47,400 --> 00:10:50,625 help, reach out and we'd love to talk with you about it. 177 00:10:50,625 --> 00:10:52,216 Thanks so much for tuning in. 178 00:10:52,216 --> 00:10:55,504 This has been another episode of Better Financial Health in 15 179 00:10:55,504 --> 00:10:56,187 minutes or less.