If you aren’t aware of these usually interesting case studies, the Globe and Mail finance section reviews a couples finances, and address concerns they have. The concern is normally wanting to retire, but the people/couples are unsure how their financial picture may look after exiting the workforce. Advise is given, which is normally decent, with one GLARING omission. I don’t think any adviser has ever spoken about reducing spending! What kind of advice is that? This is likely because the more these couples spend, the more they need to invest, thus the more these advisers make off commission. Sorry, I’m off topic, that is a whole other story. Here is the link to the feature:
The link I posted is pretty much the a fore mentioned retirement situation. I’m not going to spend a lot of time crunching numbers, but simply reviewing the spending. Which is listed as follows:
Monthly expenditures: Property tax $360; utilities $280; home insurance, maintenance $70; transportation $830; groceries $1,250; child care $1,000; clothing $80; line of credit $2,170; gifts $300; $100; vacation $400; cleaning $325; entertainment $450; grooming $80; hobbies, subscriptions $340; personal $190; life insurance $185; telecom $70; RRSPs $1,195; RESP $385; TFSAs $700; group benefits $170. Total: $10,830.
This couple has a totally ridiculous goal of a retirement income of $8,500 net per month. Their current net is $11,150 per month.
Here is the reason this goal is totally insane: They want to spend MORE in retirement than they are spending now! And boy, are the spending! Here is my calculation:
Current net $11,150 minus: $1,000 child care (no longer an expense during retirement) – $1,1,95 RRSP (no longer saving for retirement in retirement) – $385 RESP (no longer an expense, children out of school by this time) – $700 TFSA (again more retirement savings that will no longer be needed = $7,870. So this is what they are “spending” now. They want to spend about $700 MORE per month in retirement.
This also doesn’t account for $2,170 line of credit that is do to be paid off, thus will be available for them to spend in retirement. Has no one pointed this out? This couple is going to burn $8,500 a month with no mortgage payment, no debt repayment? Wow.
Now lets start picking at their other expenses. Oh yes, transportation. They NEED to buy two new cars $30,000 EACH!!! I just passed out. This is a bit much for someone coming up a bit short on their retirement goals, isn’t it? How about we be nearly reasonable, and spend half that, $15,000 on each car, I’m sure you can buy two “beater” cars for 15K can’t you? Yes, you may need an extra 1 or 2 grand for a repair or two over the 7 or 8 years you own these cars, unless you buy new for this price, which is doable by the way. Groceries, this will come way down for 2 people. Cleaning….this should be $0. Pick up a broom! Hobbies and subscriptions $340, this sounds quite pricey, should be able to cut this in half….find the nearest library. Entertainment, again an but much, we’ll knock off $150 of this. And then there is the $270 that isn’t accounted for, that is a bit much to let slip through the cracks…where is this going????
Here is what their retirement spending should look like (some items I haven’t touched, because The Fake Cheap is just that nice of a guy):
Property tax $360; utilities $280; home insurance, maintenance $70; transportation $415; groceries $800; clothing $80; gifts $300; $100; vacation $400; entertainment $300; grooming $80; hobbies, subscriptions $170; personal $190; life insurance $185; telecom $70;; group benefits $170. Total: $3,970
Judging by the combined pension income alone of about $5,900 gross, as per the article, should put them just about right on target. What to travel? Well you’ve got $400 per month already, any extra needed should come out of those TFSA and RRSPs. Same of unforeseen expenses.
I also want to point out that they want a stress free and debt free life. I’m not sure if the spending was address by their planner, if they had one, but if you want stress free, there are two ways you can go, throw money at everything and make stuff go away or hire people to make it go away for you (the very expensive/consumer route); or go semi frugal at least and get your hands a bit dirty and watch the stress fly away along with your money troubles.
Lastly and briefly I’m going to mention the retirement age of 65. Ick. I know this is a personal choice, and maybe they really do love their jobs. I can’t imagine being 40 and having to work another 25 years. Wow. Anyway, what if they could have sacrificed a few of these expenses earlier in life, and invested those savings? Cut the transportation subscriptions in half and zero out the cleaning, just these slight changes alone gives you $910/mth stick that in a TFSA for 10 years at 5% would yield a sweet $145,000. If only they would that thought about that 10 years ago. Wait, maybe you ARE Mike and Morley 10 years ago, well then great news….here is YOUR chance! Make some easy changes and you won’t be in their shoes.
Thanks for reading.