Wealth Mgmnt

Retirement Math: Cut Spending!

It seems like since the day I was born I was behind the curve for saving for retirement. As an entrepreneur I rarely had the money or inclination to set aside a big chunk of the money I needed to run the business for my retirement, which was 60 years away. Saving is good. No one will dispute that. However, if you take a moment to think about it, who has been at the crux of this obsession with savings.

The financial sector of course. They will gladly take your money now, and hopefully be around to pay it back when you retire. Does anyone remember E.F. Hutton or Bear Stearns? One would assume at this point in the trillion dollars of debt, that any social security left would be insignificant as far as maintaining your current lifestyle, whatever that is. I remember the days when you were told that you needed to have a million dollars to retire comfortably. After all, one could live quite well on risk-free bond rates that were yielding 15% or more at the time.

Since that peak in rates, the yield has been all downhill. Let’s see, if I have a million dollars today, and my risk-free rate is 0%, then my annual income from it is zero dollars. Don’t fret, the financial industry saw this coming. You must save more to keep up with declining yields. $2 million, $5 million and more and more. On top of that, if you have kids in college, one assumes that they never will retire.

But wait, there are two sides to the equation. The savings side, which most of us waved goodbye to years ago, and the spending side. Yes, the spending side is key. That’s where the math of subtraction comes in. It is easier to cut expenses than to earn more money. You’ve seen all the retirement magazines listing places in the world where you can live for less than $2,000 a month.

Well, depending again upon your lifestyle, you can almost do that here. Here’s one example. Cristina Livadary, a financial planner in Marina Del Rey, Calif., said she is advising a couple who were spending $17,000 a month when the husband, the primary earner, took a buyout package from his tech company. He was 61 years old and feared he’d never get a job again because of his age. They reduced their monthly spending to under $10,000, by basically cutting off the money they were spending on their adult children. Gotta grow up sometime.

Often more draconian measures are warranted. Gabriel Shahin, a financial planner in Ontario, Calif., has had more than a dozen clients sell homes in California and move to Nevada, which has lower house prices and no state income tax. Most clear $250,000 to $500,000 in cash from selling their California home and use that to buy a house in Nevada without a mortgage. Their monthly spending declines by perhaps $2,000 a month.

The bottom line is that without losing any of the things that most matter to us, we can still trim our spending by hundreds, if not thousands of dollars a month. That should do the trick and allow us to live off our retirement savings.

Wealth Mgmnt