Living Your Best Stoplight Life
My recent articles have been discussing the technical sides of what to do when spending your retirement savings, so this week I will discuss how to think about spending your retirement savings. We need to think about retirement from an energy and physical ability perspective. When you enter retirement, typically, you have a lot of energy and feel healthy. But, as you continue further into your late 70s, 80, and 90s you start to slow down and lose the energy to do things such as travel, go on cruises, work at a hobby, and so on. When most retirees start to slow down, they refocus their time spent on family or taking care of others at home. Then eventually you must start to spend time, energy, and money on your own health and comfort. This process is what I refer to as the retirement stoplight. Thinking this way will help you compartmentalize how and when to spend your retirement savings to get the most satisfaction out of limited time we have on this planet. Let’s take a trip back to drivers ed and review each light and how to think about spending during that stage.
Green means go!
This is the beginning of your retirement. This is a new chapter in your life, and you should soak it in as much as possible. In this stage, I encourage you to think of your wildest dreams and to take some risks to get them done. Your body and mind will never be in better shape than it is at this moment, so you need to hit that bucket list. I want to see traveling, moving to a city you’ve always wanted to try, fun dining, starting a business or hobby, and doing other fun activities that require energy. I want you to fly through that green light like a race car.
Now, I am not encouraging you to spend all your savings on this stage because life isn’t free after this. Having an actively monitored plan can help you determine how much you can spend each year and have enough left over for the next two stages. Just remember, you can’t take the money with you when you die so have fun while you can!
Yellow, time to start yielding
There is a notable transition from Green to Yellow so don’t worry about not identifying when this occurs. You will be in the middle of a green light activity and realize it wasn’t as easy as it was the year before. At this light you will most likely tone down the intensity of your ideas. This doesn’t mean you are stopping but you may not be doing the 10-mile walking tour of Madrid and opt for the bus tour instead. Maybe you’ll hit a vineyard in lieu of Octoberfest. You are still enjoying your life, but you are just using a slower gait.
Now is the time to start considering what the next stage will look like but do not dwell on it. I want your mind to focus on enjoying life but thinking of things that can be done with less energy and physical ability. If you have been working with a financial planner than you have already determined whether you should, or can, have long-term care coverage or if you are self-funding. That process will give you peace-of-mind for the next stage so you can continue to enjoy your time with family and fun plans.
Red. Take a brake(pun)…
Unfortunately, this is a stage everyone has to deal with at some point. The red light stage is the time when you no longer have the physical or mental ability to enjoy your retirement savings. Here you will be redirecting your assets to your health and physical comfort. As mentioned, your estate and long-term care planning should be in place to make sure the remainder of your assets are doing what you intended. Also, having a living will and power of attorney will help make difficult decisions if you are incapable. This is not anyone’s favorite light, but it is inevitable and the best we can do is make sure we plan for it. In my eyes, if you followed the steps above then you should be coming up to the red light slamming your brakes and skidding to a stop because you weren’t holding back when you had the chance. Time to reflect on the fun you had with family because you lived a great life and should be proud. What an awesome ride!
Most retirement planners only focus on saving as hard as you can when accumulating assets and keeping a tight budget during retirement. What is the point of saving all this money if you are just going to die and leave it on the table? You worked hard for these assets, and you should enjoy them as much as you can. Having a huge account balance when you die isn’t a success unless it was a part of your estate plan. If you want to leave money to others, you should utilize an estate planning tool, like a trust, but for the rest of your money you should live life to the fullest. Those memories of a fun green light retirement will help you cognitively when you are on the yellow and red lights.
Please keep in mind that no one, including me, has a crystal ball that can tell us how long each one of these lights will last. Having a financial plan to budget for each one of these stages is key to how much fun you can draw from your savings. Working with a financial planner and revisiting your budget each year can help you stay on track to see how much money you spend on your basic expense bucket and more importantly your fun bucket.
Send me an email or book a call to start working on a budget for your retirement. One of my favorite activities with clients is hearing what they are doing, or going to do, during their green light phase. Let’s make a plan so I can hear yours!
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