5 Common Retirement Budgeting Mistakes

The Employee Benefit Research Institute’s 2021 “Spending in Retirement Survey” reveals that nearly half (46%) of retirees between the ages of 62 and 75 saved less money than they needed in retirement. And more than three in four (76%) did not meet their retirement expectations.

The peak earning years for seniors are gone and the only supplement to accrued savings, other than the hopeful growth of investment accounts, is often social security checks or employer pension payments. The risk of unexpected — and unwelcome — financial surprises can derail any plan that has a minimal margin for error.

Therefore, it is crucial for seniors to manage their spending levels and make sure that their expenses do not exceed their income sources.

In other words, budgets still matter with retirement.

Experts have identified five common budgeting mistakes to avoid:

1. Neglecting the Plan

Many seniors invest time and energy throughout their lives to build a nest egg, but then fail to maintain the same attention to detail after they retire.  It’s important to be vigilant about retirement budgets and monitor monthly cash flows.  Such oversight allows for modifying certain purchasing decisions as necessary and to accelerate others if an opportunity emerges.

2. Too Much Faith in Fixed Income

It is dangerous to assume the monthly checks from a company pension and/or social security will be sufficient to pay for expenses long-term. Many employer-provided pensions were created during an era when interest rates and bond yields were much higher, allowing for optimistic forecasts and annual cost adjustments that may not materialize in the current financial climate.  And while Social Security payments are adjusted annually for inflation, the current underfunding of the system creates scary headlines for retirees that causes stress and uncertainty.

3. Underestimating Leisure Expenses

Most retirees have time to allocate to activities that they were unable to enjoy earlier in life. That’s great! But unfortunately, it is common to underestimate the costs associated with eating out with friends more frequently, traveling to new destinations and entertaining grandchildren. Those leisure expenses can strain a retirement budget if not controlled.

4. The Healthcare Bomb

It’s common knowledge that medical expenses will likely increase as we get older, but most seniors are confronted with healthcare costs that far exceed what they anticipated. Fidelity’s most recent Retiree Health Care Cost Estimate report found that a 65-year-old couple retiring in 2021 can expect to spend $300,000 in health care and medical expenses throughout retirement. This healthcare bomb can deplete resources quickly if not properly considered.

5. Supporting Adult Kids

One survey from Merrill Lynch reported that 79% of parents financially support an adult child between the ages of 18 and 34, and 25% say they would be willing to draw from retirement savings to do so. This is an instinctive and deeply personal choice motivated by love, but many seniors jeopardize their own retirement budgets by giving their kids money to subsidize their own personal lifestyles.

Of course, people of all ages suffer from budget-related stress. One survey by CompareCards.com found that nearly 7 in 10 Americans admit to crying about their finances at some point, typically due to a job loss or mounting debt.

However, for those living in retirement, financial stress caused by one or more budgeting mistakes can be much more burdensome since there is a much shorter runway available to compensate for any unexpected debt issues, shortfalls in savings or disappointing investment returns.  The prime earning years have passed.

Financial planning experts recommend easing anxiety over finances in retirement by having a “cash floor.”  This means that a pool of liquid money is set aside that can be accessed at any time to pay unexpected bills, eliminate any stress-inducing debt or obligations or fund a retirement experience that was previously unobtainable.

How Can a “Cash Floor” be Created to Relieve Financial Stress?

One potential way is to sell a life insurance policy that is no longer needed or affordable or is no longer serving its original purpose, to a third party for a lump sum cash payment through a highly regulated transaction called a life settlement. The policy is considered personal property and can therefore be sold just like a home or car or any other asset.

The life settlement industry has paid billions of dollars to consumers and, according to the 2021 Annual Market Data Collection Survey of the Life Insurance Settlement Association, policy owners received 7.8 times more money than the cash surrender values offered by life insurance carriers.

The funds obtained from a life settlement can be used in any way a senior desires, including to pay for retirement expenses, offset expensive health care bills or provide gifts to family members or charities.

For more information or to confirm qualification, please visit www.welcomefunds.com or call 877.227.4484.