By Patrice Horner, CFP, MBA
The playing field has changed, it’s a statement we hear used when there has been a game changer in life. Retirement is a change of the major league. In previous stories, we talked about the time out and how there is now a lot more. Last week we discussed a change in the home game, and downsizing. This week, it is about coming to grips with spending and how to even the playing field, so to speak.
Most people do not spend a lot of time keeping track of what they spend. Its money in and money out. With some practice, there is some set aside for later in life. Once we reach that retirement inning, our perspective in life tends to change dramatically. What once was a casual decision to get all new gear for the season becomes how many more seasons will this gear last?
If you are like most, there is a new appreciation of penny-pinching and bargain-hunting. There are a number of techniques for getting more out of each dollar. Discount grocery days are on the calendar, as is buying in bulk. More planning and less impulse spending is important. Plan your meals ahead and buy groceries and other items to cover a week or more. This is a big saver. Entertainment spending tends to change from a night out for the opener to a minor league movie or early bird dinner.
Another important change is the spending on phones and cable. We need to take a serious look at how to economize on our communications. Over the decades, the basket of items used in calculating the Consumer Price Index (CPI) had to be adapted for the new expenditures in this digital age. It is grabbing a larger and larger portion of the monthly spending. Look at minimizing the number of lines and channels. Eliminate extras that aren’t really needed, such as data. Where can you swap out something for a less costly alternatives?
Part of the monthly spend that should take some serious planning is healthcare. This always increases dramatically after retirement and when group sponsored healthcare is no longer available. And I mean out of the ball-park increases. Be sure to get a couple of quotes for healthcare and take a close look at the government options. Then, take a piece of paper and list the coverage features down the rows (ie home care coverage and hospital days, or deductibles and lifetime maximums), and compare the policies by writing the specifics in a column for particular insurance company. This will help it getting a clearer picture of the whole field.
In summary, what you really need is a spending plan. I recommend making a list of monthly spending as it is before retirement, then adjust it. First change the monthly income expected from a pension or social insurance, then cut back unnecessary spending items until the cash flow is in balance. No more should be going out than is coming in. This is where there can be a real game changer and it might be time to find a paying hobby or small job to make sure you can cover all the bases.
Patrice Horner holds an MBA in Finance and is a Certified Financial Planner (CFP-US). She covers issues concerning the financial planning industry and profession. Horner is a director of Senior Solutions Ltd. and previously the VP of North Atlantic Management Ltd, a pension investment advisory firm.
By Patrice Horner