How to avoid going broke in retirement

By Megan Giles: Retirement Transition Consultant

First published by Over Sixty [Link: www.oversixty.com.au]

Two of the biggest fears for Australian Baby Boomers in preparing for retirement is coping with unplanned financial expenses and outliving one’s savings. Despite this many retirees don’t have a budget. They worry about money but don’t have a plan of action to counter that fear.

Why are we human beings so resistant to developing a budget?

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Academically we understand that good money management is critical to a relaxed and satisfying retirement, and logically we know that a person worried about their funds should develop a budget. But not everyone does. It appears there is something more holding people back.

There is a mindset factor. Perhaps because the only option they can envisage is akin to university days of 2 minute noodles 24/7. It’s not very appealing, is it? Retirees don’t want a fixed budget - they want to grab life by the horns and live their retirement dreams!

Vivian had diligently saved for retirement and now that she was 65 wanted to reap the rewards! In her first year of retirement she spoilt her grandchildren, purchased a new retirement wardrobe and made regular getaways through AirBnB. But there was something gnawing away at her mind and preventing her from truly enjoying each moment. In fact she would often wake at night with thoughts racing through her mind. She just didn’t know how long this could continue - when her money would run out. She had never sought financial advice but trusted that the ‘system’ would support her.  Now that she was retired, she wasn’t so sure.

Like Vivian there is a tendency to ignore our financial worries, hoping they will go away. Our internal reasoning is ‘if I don’t think about it, I don’t have a problem’.  It’s a common coping mechanism and something many of us do when a problem seems too big or we don’t know how to begin solving it. In the present moment this is an appealing response as it allows you to get on with the business of enjoying life.

Unfortunately avoidance is not a helpful coping mechanism in the long term. Why?

  1. It only makes matters worse – the longer you ignore a problem, the bigger it gets. Continued overspending erodes the (now finite) funds available over your retirement
  2. It can lead to other problems - worrying about money matters, consciously or unconsciously, can wreak havoc with the body and mind. Symptoms you may notice include; poor quality sleep, irritability and feelings of resentment (as you feel there are too many things you are unable to afford)
  3. It impacts the people around you – in a relationship this approach to money management potentially jeopardises the retirement of your significant other. This is particularly the case for men as statistically your wife is likely to outlive you. How confident are you that she will be financially secure when you’re gone?

How a budget will enhance your retirement?

From a psychological perspective, putting a budget in place can have a powerful impact on how satisfied and fulfilled you feel in retirement. Here are three reasons why.

  1. Knowledge is power. It doesn’t sound particularly ‘sexy’ but there is something empowering about educating yourself, knowing your numbers and increasing your financial confidence. When you are in control, you make decisions about how to spend your money and live retirement to the fullest. That’s a pretty great feeling.
  2. You worry less.  Regardless of your financial position (good or not so good), when you know your numbers you can create an informed budget. You don’t have to worry about the future because you know where you are heading and you have a plan to position yourself positively
  3. It creates greater joy in spending. A budget creates parameters so don’t have to agonise over financial decisions. For example, if you want to go on holiday a budget informs you of your daily allowance for hotels and activities. You can feel good about spending money because everything is accounted for and you will not be left with a holiday debt.
After meeting with a financial planner, Vivian downloaded an online budgeting tool and set about creating a weekly budget. By knowing her numbers she could prioritise what to spend money on. What she revelled in most was being discerning with her money – she could spent it however she wanted, but chose to spend it on the things most important to her.

If your money matters are keeping you awake at night there are a couple of key actions you can take right now:

  • Speak with a trusted financial advisor. They are the experts and have the tools and resources to assist you in reaching your retirement goals (and it’s never too late to take action)
  • Download a budget tool such as the one available at www.smartmoney.gov.au
  • Discuss your financial situation with your significant other or close friend – don’t feel you have to cope with this worry alone. As they often say, ‘a problem shared is a problem halved’

 

I wish you the very best on your journey,

Megan

 

If you enjoyed this article you may also like to read Is your financial position keeping you awake at night? and 4 myths about financial planners busted!

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