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Saturday, June 2, 2012

Try not to outlive your money - or the cumulative effect of many small decisions

I mentioned in an earlier post that we recently gave some money to elderly (almost 90 years old) relatives who are having financial difficulty.  Then today when I was driving around with an 85 year old friend (to visit other Friends of the Library groups' book sales for ideas) she told me a story about a 80+ year old friend of hers who had ended up with no social security, etc.  This got me thinking about what many of us fear, but may not take the right steps to prevent, which is outliving our money.

Think about the many decisions that are made throughout adult life that lead to not having money saved for living a long life.  I'm not talking about the tragic consequences of outrageous medical expenses or becoming disabled young nor even about long term unemployment which uses up all saved resources.  I'm not even talking about the unexpected impact of extremely low rates of return for extended periods like we are experiencing right now.

I am talking about buying more clothes than you can wear, trading up to more expensive cars or houses, and other consumerist, keeping up with the Joneses behavior.  Or not participating in retirement accounts where the company also contributes or putting money away in your own savings vehicles.

An unwillingness to adjust one's lifestyle to fit ones resources creates a cascade of problems in later years.  The tragedy of living beyond one's means over a lifetime is that you end up not only with an unsustainable lifestyle, but you also have fewer resources to fund even a reduced level of comfort.

The idea that one can keep on working and generating income until you die is one I hear from lots of baby boomers, but the reality is that very few people in their 80s or 90s are able to work.  I know of people in their 80s who still have mortgage payments because they used their home as a bank earlier in their life rather than adjusting their lifestyle. There is no way they can produce income so with diminished assets they still have the burden of these payments.

It has been a few years since we sat down with a financial planner and projected our own likelihood of having enough money if we live to be 100 - which is not an unreasonable assumption.  We are going to sit down by ourselves in June and really look at the numbers again given how little we are currently earning on our savings/retirement accounts, the increase in medical costs and the cost of living in our current house, and other things.  It will be an interesting discussion I'm sure and it is hard to make such long range projections and good decisions when there are so many unknowns.  But we have to do it!  We might live another 40 years.

How do you approach this difficult area of your financial life?  I'd like to hear your thoughts.


10 comments:

  1. Saving for retirement can be overwhelming I think to many. The amount of money you might need seems to move each year with the cost of healthcare, food, gas and such. We have saved for retirerment our entire life, our home will be paid off long before then and we have no consumer debt. Even with all of that it is hard to know how much is enough. We increased our savings when the last of our DD's left home and have been contributing the max. aloud to 401K. We figure we are doing all we can do, the rest we have to leave in the hands of the big guy upstaires

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    1. Debby, it sounds like you are doing very well!

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  2. Great post! We are currently working to pay off newly incurred debt from the wedding and our older debt, the car. I am hoping to see a huge dent in it by the end of the year...hopefully with the wedding paid off entirely. I wish we had had the extra for the wedding but we didn't.

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    1. Thanks. Sounds like you have a good plan too. When I think about how well you created a lovely wedding on a budget I am so impressed!

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  3. Usual at the end of each month I try to get around and visit some other blogs but toward end of May I was working pretty hard and just fell asleep.

    I came over from Carla at ½ dozen daily....I thought your first paragraph on not getting Social Security was interesting . I don't see how someone doesn't end up with no Social Security of some type....I have a friend that didn't work much and paid in to the system pretty sure she didn't have her credits in....but social security does have an program for these people...I believe she gets $350 a month but had to wait til she was 65 years old.
    Not sure what going on now that her husband recently turn 62 years old

    There some people just has trouble managing there life not saying I have my short comings....

    Hope you have a few minutes to stop on in for a cup of coffee.

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    1. Thanks for stopping by! As I understand it this woman didn't work long enough to qualify on her own, her husband worked for the federal gov't back when employees didn't participate in SS and then quit before he qualified for a pension. Then they owned a resort in another country until he died and she was left broke. I don't know her but it made sense since neither one qualified. It is unusual.

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  4. I will be heading towards a life on a government pension when I reach 65 and so will my hubby. We have no assets and will have to continue to pay rent for the rest of our lives, the only thing we can hope for is to have cleared all debts by then.
    Do I wish things were different, you bet!!!But I am a serial bad money manager, so kudos to you for making the correct choices....

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    1. Maureen, I think you have done one huge thing right - having pensions to rely on. I haven't a clue if we have made the correct choices or not but really feel so badly for the very elderly who are suffering partly because of decisions they made.

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  5. I'm lucky that my husband is an accountant and a good manager of money. If it were left up to me, we'd be much worse off, I'm afraid. My Dad died at 61 and my Mum died at 60 years of age and I stupidly have it in my head that my expiry date will be around the same age, so I tend to live for the moment. Very silly, I know!

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    1. How sad to lose your parents at such a young age. We on the other hand come from long lived families and so have been assuming we could live to or past 100. It is rather daunting to think of financing that long a life though.

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