This Retirement Budget Move Buys More Peace of Mind Than a Perfect Number
It’s easy to get obsessed with numbers in retirement, partly because it’s so hard to avoid getting bombarded with them during your working years.
Long before you reach retirement age, you’ll be inundated with advice on numbers related to the ideal nest egg, how much you can expect to spend in retirement, which age to claim Social Security, how much to withdraw from your 401(k) every year and on and on. But rather than chase the perfect number(s), you’ll gain more peace of mind by following a single retirement budget move.
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Keep reading to learn more.
Focus on Fixed Costs
The best thing you can do to ensure a comfortable retirement is to keep your fixed costs low enough that they’re both manageable and predictable.
In terms of financial peace of mind, low fixed costs check several important boxes, according to Chad Cummings, attorney and certified public accountant (CPA) at Cummings & Cummings Law, who previously worked in finance and tax.
“Lower fixed costs buy peace of mind because they reduce forced financial decisions and help you avoid decision fatigue, which is the No. 1 reason that financial plans fail in implementation and execution,” Cummings told MoneyLion. “Retirees get into trouble when a market decline coincides with a roof replacement, an insurance increase or a vehicle purchase.”
High fixed costs can also lead to unfavorable financial moves, such as selling investments at depressed prices just so you can cover your budget.
“The idea is to make decisions now, when times are good, rather than making hard decisions down the line,” Cummings said. “This can also be as simple as checking for duplicate subscriptions to health clubs, streaming services, etc. and shopping around for home and car insurance.”
Don’t Let Your Nest Egg Determine Your Spending
Obviously, it’s important to build sufficient retirement savings so you’ll have enough money to last throughout your retirement. What you don’t want to do is let a big nest egg give you a false sense of security that leads to undisciplined spending.
“I would rather see a retiree enter retirement with $4,500 of predictable monthly expenses and a modest portfolio than $8,000 of fixed obligations and a larger portfolio,” Cummings said. “Every dollar of mandatory spending increases the amount that investments must produce during bad markets. The time to dial back discretionary spending is when times are good — not after the market tanks.”
Housing costs merit “particular scrutiny,” because they can “consume retirement cash flow for decades.”
As an example, Cummings advises against spending your golden years in a community where you’ll have to pay HOA fees. Instead, you should live where you can avoid “ongoing dues for amenities” that most homeowners never use.
“A retiree carrying a $3,000 mortgage payment, $900 condominium assessment and rising insurance premiums has created a permanent cash sink,” Cummings said. “Downsizing, paying off debt or relocating before retirement can eliminate thousands of dollars of required monthly withdrawals. Remember, condo/HOA dues and insurance historically have always outpaced inflation … and it's not even close.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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