Volume 4 – Independence in Retirement
Most people, perhaps all people, seek a high level of Independence in their Retirement. This Series discusses the main elements of an independent life in retirement.
Issue #1 – Financial
As we will discover as this Series unfolds, there are many important factors in a person having an independent life in retirement, but with the possible exception of Health, the main influencing element is Money.
Having money (or at least enough to live along time on) doesn’t bring happiness in and of itself. However, the lack of money contributes significantly to unhappiness.
During their working lives many people blow it all as soon as they get it. On the other hand, many people save ferociously for their retirement years. Neither approach can be criticised but, perhaps the balance between saving and enjoyment should have been sought. In any event, if you are near retirement, or are in retirement, the opportunity to go back and save more has probably disappeared now. We may be “stuck”.
In every corner of the world, people believe that they can buy their way out of bad situations.
If they get stuck at an airport overnight, they can afford that extra night in a hotel to allow them to sleep, then travel the next day.
But independence is much more than a temporary fix. It is the ability to handle all money needs, not just today or tomorrow, but for the rest of your life. There may always be the unexpected high-cost matter arising, but by and large, if you believe you can live within your means for the rest of your life, then you are very much in an enviable situation.
There is no magic formula to financial independence. It just doesn’t work like that. But there are several ways to level out the highs and lows, peaks and troughs, good and bad.
You must know your annual expenses. You just must. No excuses. Build in sporadic vacations, or house repairs, or new cars etc. and annualise them (divide the one-time cost by 12 months and insert the result in EACH month). Yes you CAN do it. Go on, try it.
You maybe don’t know how to use an Excel spreadsheet –-fair enough. But get a piece of paper and write down all the categories of expenses (rent, mortgage, utilities, groceries, prescriptions, etc). Now fill in the cost each month by category. Easy wasn’t it.
Now insert your monthly pension income, investment income, rental income, part-time job … whatever it is, enter it.
Take the monthly expenses away from the monthly income and see if you have a surplus. Yes..? Good for you.
So, if your expenses are expected to be stable (leaving aside the large unexpected) and if your income is also expected to be stable, there is little chance that you will have a shortfall year over year. So far, so good.
Any idea how long you will live ?
It’s unlikely you know, existing illness aside. So the “denominator” is unknown … that is, the number of years left to live. Fear not. If your income versus expenses exercise shows a surplus, and it can be reasonably expected to be like that for a long time, then it doesn’t matter what the denominator is …. you will be able to sustain your lifestyle at current levels.
In other words, your Independence can be reasonably expected to last for the rest of your life. You won’t have to rely on family, or Government, or charities etc. to take care of you financially (health may be a different matter).
Your financial independence will never be guaranteed of course, but if you know your income and expenses, and monitor them regularly, then you have a great opportunity to be in control of your finances … and your life. Go for it.