May 2, 2013 by Jean
This has been a longer hiatus between blog posts than I had planned. Part of the explanation is that I got overtaken by work responsibilities. (I’m not retired yet.) But that’s not all; the truth is that this post was hard to write because this topic makes me anxious. I’m not alone in this. This is probably the most commonly asked question by those contemplating retirement, and it is the focus of most retirement planning advice. Personal finance experts report that the main reason money is such a source of anxiety in thinking about retirement is that most people have no idea what it costs them to live each month.
This is not the explanation in my case, however. I’ve been an obsessive-compulsive budgeter for most of my life. I developed a predisposition to budgeting in childhood by observing my father sitting at the desk each Thursday evening and dividing the money from his newly-cashed paycheck into a series of budget envelopes; there was an envelope for each type of expense, and money went into all of them every week. For more than forty years now, I’ve followed my parents’ example by budgeting and keeping track of every penny I’ve spent – first in a series of turquoise home budget books from Dome, and, since the 1990s, in my own custom-designed budget spreadsheets. I know exactly what it costs me to live each month.
But I still worry about whether I’ll have enough money to live on in retirement, and redoing the calculations over and over again doesn’t seem to completely allay the anxiety. Why? The truth is that I’ve had some anxiety about running out of money for most of my adult life. As a single woman, I knew that I was completely dependent on my own financial resources; there was no one else’s earning power to fall back on. I dealt with that anxiety by always living below my means and building up savings. Long before I had ever heard the term “emergency fund,” I had one. For years, even after I had my Ph.D. and a career as a professional, if I walked into a store or a fast-food restaurant that had a “Help Wanted” sign, I would automatically think, “I should apply. It’s always a good idea to have a second job – just in case.” Budgeting was, in fact, a strategy for allaying my financial anxiety by reassuring myself that I had enough money. One of my favorite rituals each New Year’s Day has been to balance my household accounts for the year, showing myself that more money came in than went out and that I was earning more than enough to live comfortably on.
And there is the rub. For more than thirty years, I’ve been dealing with money anxieties by spending less than I earned and saving. But retirement means that I’ll no longer be earning; instead I’ll need to spend my savings to live on. Recently, it occurred to me that I could make an end-run around my anxiety about running out of money by building a retirement budget that includes “savings” for unexpected emergencies. Once I had this flash of insight, I sat down and created a new retirement budget, using my current monthly budget as a baseline and then reducing categories (like clothing) that I expect to spend less on in retirement and increasing categories (like health care) that I expect to spend more on. In addition to spending lines for things like groceries, utilities, entertainment, and travel, I added monthly savings for items like house repairs and short-term savings. The resulting estimate of my expenses was $300 more per month than I had previously been calculating, but I found this new amount reassuring because it seems like a more realistic estimate and because I can see that I will have enough money from Social Security and my retirement savings to cover this with plenty to spare (a cushion for inflation).
I don’t kid myself that this retirement budget will be just right. Like my previous budgets, it will need tweaking each year based on my experience of retirement living. But I’m now feeling more confident that I will have enough money to live on in retirement.