Spending for the Silver Years
Experts say financing retirement is a family affair with more than just savings at stake
Talking to family members about money can be tough, especially when thrift is the topic du jour. Experts agree, though, that making sure goals, plans and spending realities are in line is more crucial than ever. Preretirement spending as a part of retirement planning is an important issue that few fully consider. Here are some tips about what to say, how to say it and whom to say it to.
Michael E. Kitces, partner and director of a private wealth management group in Maryland, reminds all his clients that retirement isn’t just about saving. Not only are standard projections of compound growth untrustworthy, as the economy has recently shown, but as people earn more, they tend to spend more. What you saved in your 20s might not be able to support the lifestyle you grow accustomed to in your 50s if you let your spending keep up with your income.
“The key is to focus not on blindly saving a percentage of your income … [but] to focus instead [on] your spending, and specifically on maintaining your lifestyle,” says Kitces. “If you just live by spending in your 30s like your 20s, your 40s like your 30s, and your 50s like your 40s, you can have a successful retirement in the decades that follow.”
“Spend less so you can save more” is the basic takeaway from the number crunching Kitces provides—simple enough advice to follow but often hard to talk family members into. Whether retirement is near or far, though, talking to family members about spending habits and plans is an essential part of retirement planning.
“To avoid unnecessary surprises, discuss retirement goals with your spouse or partner regularly, especially as you near retirement age,” recommend the professionals at Ameriprise Financial. “It’s never too early to talk with your parents about the future. Let them know you love them and want to ensure that any transitions they make later in life are as smooth and comfortable as possible. Inquire if they have made any arrangements or have a long-term care policy or other financial resources set aside to pay for future housing, caregiving and transportation needs.”
Approaching these conversations in a manner that shows your concern and your shared hope for a well-funded retirement will help ease the conversations and future financial burdens. Keeping your household spending on track means that everyone in your household for whom you might become financially responsible is on the same page in terms of goals and expectations, so don’t delay these conversations.
“The best possible time to have this conversation is before something gets to be a crisis,” says Dr. Nancy Molitor, clinical psychologist and public education coordinator for the American Psychological Association. She repeats Ameriprise’s advice to have financial conversations, including those involving retirement, often and early.
“Very few things in life are solved with one big talk,” she says. “The first conversation should be a basic probe. It might be when you’re on vacation with them, or out for an evening, and you happen to say, ‘Boy, have you been paying attention to stock market?’” Deeper conversations won’t hit any nerves if some groundwork has been laid.
Understanding the spending aspect of a solid retirement plan isn’t too hard, but implementing it can be harder. Talk to your family about retirement plans today and save the financial and emotional stress tomorrow.