Below is an excerpt from the book Downsize Sooner than Later – 18 Rules for Retirement Success available on Amazon.com.
Imagine your monthly bills.
Think of your gas and electric bill, cell phone, Internet, and grocery receipts. Add to that the cost of “your responsibility” for a recent medical office copay, a recent test, x-ray, or lab work. Lastly, throw in your water bill, trash bill, and monthly auto insurance – all due in the coming days. Now, imagine your checkbook. Every bill you pay, online or written out by hand, comes from your checking or other equivalent account. Take a moment, as you surely have countless times in the past, to look at the numbers.
If you’re like most people, when you review your expenses and account balances, it is as much a “feeling” as a rational assessment: “Wow, the grocery bill was higher than usual. Those out-of-town guests we hosted last weekend caused us to buy a bit more food items than we otherwise would – three extra trips to the store. Oh, and there’s that receipt from eating out on Thursday, a gasoline receipt I forgot about, and the re-charge of the Starbucks card. Wait, here’s a receipt from Amazon – no, actually two receipts, one for the leaf-blower we had to replace and the other for that graduation present we bought for our niece.”
As you account for and pay these bills, you keep your eye on your balance.
If no new money comes in to replace what you spend, the balance goes down. Sometimes, watching this happen is gut-wrenching. It causes stress, anxiety, and a sense of loss. Depending on the nature of the bills due, it can even stir up a bit of resentment.
During your working years, the remedy for such feelings is simple, if not always easy. You rely on recurring income from your paycheck to replace and refresh the funds you ultimately spend. Your paycheck is your wellspring. It is your fuel. It is your source of energy and continuing sustenance.
Ever-present at any stage of adult life is the tug-of-war between what comes “in” as income versus what goes “out” as spending.
We may try budgeting in various ways to keep our heads above water. This may take the shape of meticulous planning or the exercise of moderation. Sometimes, guilt helps us stay on track. Other times, perhaps, waves of panic.
Imagine now that you have reached retirement age. All the spending examples given above can just as easily occur in your eighties as they do in your thirties, forties or fifties. Each of these expenses is common and recurring. You may pay off a home, cars, or other expensive personal items, but there will always be certain basic expenses required to maintain your lifestyle – to take care of the things you own, keep yourself warm (or cool, depending on where you live), keep the lights on, pay for food, pay doctor bills, pay for certain types of insurance, etc.
Basic expenses never go away, regardless of your age.
Let’s repeat that…basic expenses never go away, regardless of your age.
The major difference is, as a retiree, you may have little – or substantially less – of a steady paycheck available to refresh and restore your account balances. This begs a critical question: How will you and your spouse – or your surviving spouse – derive a sustainable income stream to pay ongoing bills when you retire?
Simply dividing what you have saved by your life expectancy won’t cut it. This is because no one knows for sure how long he or she will live. What if you live substantially longer? Many imagine that by keeping the money they are not currently spending invested in anticipation of “historical average” market returns, they will be able to grow their way to sustainability. But what if markets take a dive and you end up with less money available for income than you thought?
At younger ages, your paycheck replenished your accounts and replaced the money you were inevitably forced to spend.
Is there a way to make the same thing happen when you retire? Can you secure an “income for life” that is not dependent on what happens in the markets and that promises to keep paying, regardless of how long you live?
We discuss the answers to these questions in the upcoming rules.
For now, the major point to etch into stone is to acknowledge and never forget that throughout retirement, you will always have bills to pay. This is real money that must be spent and that, once spent, will be gone forever. It cannot be re-saved, reinvested, or left to heirs.
The sustained ability to pay ongoing bills regardless of how long you live is the essence of financial security in retirement.
This fact is true for you, your spouse, your parents, and for any other person seeking financial safety and peace of mind in his or her senior years.
Questions or comments?
I can be reached at this link – contact Ted Stevenot.