Speaker 1: Hi, I'm Stacey Hyde.
Speaker 1: I'm back with another episode of Better Financial Health in 15 Minutes or Less, and today I want to talk about something geared more toward retirees, and it's the myth that, because you're retired, you don't need a budget anymore.
Speaker 1: Spoiler alert yeah, you do, but it doesn't have to be complicated or restrictive.
Speaker 1: It's really just about giving your money a purpose, and for a lot of us, budgeting feels like punishment, something that we have to do, and we feel like we're getting slapped on the hand.
Speaker 1: If you were like me and sometimes got paddled with a wooden spoon, it feels like your hand's getting slapped.
Speaker 1: But you're retired, you worked hard, you should be free.
Speaker 1: Well, but freedom without a plan is just chaos, and you don't want chaos, because study after study shows that if you don't have a firm foundation of your financial planning in retirement, you don't enjoy your retirement nearly as much.
Speaker 1: So here's why budgeting and retirement really matters.
Speaker 1: Your cash flow in most cases isn't automatic.
Speaker 1: Some people are fortunate enough and they have an old-fashioned pension, but not many people do.
Speaker 1: Depending on when you retire, you may have Social Security and your expenses can still change.
Speaker 1: You know, you may take a bigger vacation one year.
Speaker 1: You may buy a new car, you may have something big.
Speaker 1: Dental expenses, because most people don't have dental insurance in retirement.
Speaker 1: And inflation for a long time we kind of forgot about inflation because interest rates were so low, because most people don't have dental insurance in retirement.
Speaker 1: And inflation For a long time we kind of forgot about inflation because interest rates were so low, but now, with inflation being higher, that is something we have to factor in.
Speaker 1: And the thing that I find that most people fail to factor in is longevity risk the risk of living much longer than you expect and so you've got to factor that into your budget and also peace of mind, knowing that everything's covered.
Speaker 1: My favorite thing to do as a financial planner is to encourage my retired clients to spend more money that is so fun to me because I know they've worked really hard and to tell them and what I found is when I give them a specific number, they're much more likely to spend that.
Speaker 1: So here's kind of a real simple framework to think about budgeting in retirement.
Speaker 1: You need to look at your fixed versus your variable expenses, and by fixed expenses I mean things like car insurance, homeowner insurance, property taxes, cable, internet utilities, things that you have, no matter what If you have somebody who cuts your grass, if you have somebody who helps you clean your home, all of those things.
Speaker 1: They're pretty fixed.
Speaker 1: And then you also have your Medicare premiums, your health insurance, all of those.
Speaker 1: And then you have your Medicare premiums, your health insurance, all of those.
Speaker 1: And then you have your variable.
Speaker 1: And so travel may be something that you want to do every year, but there's likely a range for the expense of that.
Speaker 1: What you spend on gifts for kids and grandkids, your hobbies whether that's your golf gear and funds for um, greens fees, cart fees, the latest clubs, um, or if you're like me and tennis is your thing, you know you got to pay for indoor courts, racket restringing, new rackets, um, those types of things.
Speaker 1: And then you kind of want to look at needs, wants, wishes.
Speaker 1: So needs are things that we must pay to live safely and well.
Speaker 1: Wants are things that enrich life, but they aren't essential, and wishes are the big stuff, the bucket list, travel, gifting, legacy, those sorts of things.
Speaker 1: So what you want to do is you want to match your income to your sources.
Speaker 1: So, to the extent you can, you want to use guaranteed income or mailbox money such as Social Security interest on your fixed income, a low portfolio withdrawal rate for those fixed income, and then you want to use growth in your portfolio for those higher end things, and this is something we tell our clients often.
Speaker 1: If you work with us, we can help you get things that might cause your withdrawal rate to be higher than we would normally be comfortable with.
Speaker 1: But we want to do it when markets are up, not when markets are down, because if we're selling stock or things of that nature, can you pause that, let me.
Speaker 1: So you want to match your income sources to your needs.
Speaker 1: So if you're fortunate enough to have a pension or if you're old enough to be on social security, that's the type of money that you want to use for your fixed expenses.
Speaker 1: If you don't have either of these, then you want to use your safe money.
Speaker 1: This is why we advise our clients even if they are and have an aggressive mindset, we still think, having funds in a money market account cash reserves, fixed income that we have steady income coming in to lay the groundwork for your fixed income.
Speaker 1: And then you can use higher withdrawals for things that are more non-essential, so your bucket list items or some extra spending, but things that could be cut back on if markets are bad and the timing is bad, and you definitely want to have a reserve fund, or a fund fund, as I would call it, because it is those little extra things that make life fun and it's the reason that you worked hard and retired and saved.
Speaker 1: You should be able to do that.
Speaker 1: But what is an extravagance for one person's budget could be could completely disrupt someone else's retirement plan.
Speaker 1: So you want to look and make sure that what you're spending and what your needs are versus what your wants are, can be supported by your savings and your income and your overall portfolio.
Speaker 1: One of the easiest ways to do this is to track your spending for a couple of months, and you can do that.
Speaker 1: Either you can use a spreadsheet, you can use a notebook, you can go over your bank accounts and credit card statements and write down if you had used any cash.
Speaker 1: And look at it that way, because I promise you're spending money, that you don't realize it or you're saying that something doesn't count because it doesn't happen all the time.
Speaker 1: Just because an expense only happens infrequently doesn't mean that you don't need to plan for it.
Speaker 1: Probably means you need to plan for it more because you're not focused on that probably means you need to plan for it more because you're not focused on that, and so you want to wind up with kind of a one-page retirement budget and then look at it quarterly, not obsessively, just periodically, and just make sure, did what I said.
Speaker 1: So you want to create a simple one-page retirement budget and then, once a quarter, look at it.
Speaker 1: Was spending about what you thought?
Speaker 1: Was the money coming in about what you thought, and was there any disconnect?
Speaker 1: An easy way to do that is to look at your bank balance.
Speaker 1: Is your bank balance growing every month, which that means you're likely spending less than the withdrawals that you're taking from retirement accounts plus your Social Security?
Speaker 1: But if it's going down, you've got to figure out why.
Speaker 1: Was it because you had a vacation that you were planning on anyway and so expenses were a little bit high?
Speaker 1: Did you have some medical care, maybe some prescription drugs that were more expensive than expected?
Speaker 1: Or was it just you failed to account for certain expenses, maybe eating out, giving money to kids and grandkids, whatever it is?
Speaker 1: You need to figure that out and then revisit, either yourself or with your advisor.
Speaker 1: Have we budgeted correctly, and if I continue to spend at this level.
Speaker 1: Is that going to be okay, or am I going to risk running out of money before I run out of days, because you really do want to have a firm financial foundation?
Speaker 1: I say this many, many times.
Speaker 1: I love to tell people, yes, but sometimes I have to warn people.
Speaker 1: It's always your money.
Speaker 1: You get to decide.
Speaker 1: Our job as your advisor is to say this is the direction you're headed and unless we course correct, you may wind up in a spot where you don't want to be.
Speaker 1: Sometimes people will say, I know, but for whatever reason, they're going to go ahead and that's their decision to make, and then we'll try to make it up, you know, if we can, but it is important to know that you do want to still run projections.
Speaker 1: A financial plan doesn't stop because you got to retirement.
Speaker 1: It continues because we can't predict markets and run away from anybody who tells you they can.
Speaker 1: We know that over time the stock market has outperformed everything else, but the stock market can get ugly for periods of time.
Speaker 1: So you want to make sure you've got some safe stuff to get you through those ugly times, but paying a little attention to your expenses and your income sources and putting it all together really will give you the foundation that you need to have a rock solid retirement plan and to have all the fun and to to do the things and to be generous and to live well and be with the people that you want to be with.
Speaker 1: So just spend a little time, be be thoughtful and if you need help, reach out and we'd love to talk with you about it.
Speaker 1: Thanks so much for tuning in.
Speaker 1: This has been another episode of Better Financial Health in 15 minutes or less.