Fit Your Retirement Wish List Into Your Budget

Familiar with the term, “retirement spending smile?”  It’s a term coined by David Blanchett at Morningstar that represents a retirement spending  pattern arc that looks like a smile.  😊  This spending pattern suggests that when people reach their 50s and 60s, they have an increase in disposable income - the mortgage is paid off, kids are out of college and income is up.  It’s kind of like a financial honeymoon period.  So when retirement hits, young retirees tend to use this extra money for their wish list.  Some travel, others renovate their homes or even buy a second home.  In other words, spending is up immediately after retirement.  After several years, spending goes down - retirees in their mid 70s and 80s tend to stay home or closer to home more often and spend very little - so the arc (spending) drops down.  But the arc soon goes back up as aging creates health problems and health care spending dramatically increases - thus creating a spending pattern that looks like a smile. 

The interesting thing about the spending smile is that the spending on the front half is controllable, but unfortunately, the spending on the back half (health care) is not.  I remember when my parents retired.  Their conservative spending and smart choices about planning for long-term care when they were in their 50s and 60s allowed for my mother to be well taken care of when she got sick in her 80s.  That’s not to say that they didn’t have a little fun and fulfill their wish list.  They purchased a winter home in AZ, they traveled, but they watched their “splurges”.  

Many new retirees who envision retirement as a time when they can really sock away the money, soon find out that a lot of their extra available money is being spent on new hobbies, travel and entertainment - their “wish list".  Is it possible to fulfill our wish lists and put money away for the years in later retirement when health care spending is up?  Of course it is, as long as we budget for it.  

Our retirement wish lists don't always consist of things of material value like second homes or expensive vacations.  Some of the best features of a wish list are experiences.  I love going to the city to see Broadway musicals.  Before retirement, there was barely enough time to see one show a year.  And the expense - at $150+ per ticket (and those were for upper balcony), seeing shows on a regular basis can get pricey.    A friend of mine who retired a few years ago suggested I look into season tickets to Broadway in Chicago.  Each season includes 4 or 5 shows with your choice of matinee or evening, week day or weekend, and choice of seats.  At around $450 for 2 lower balcony tickets to each of 5 musicals, the $45 per ticket that I am spending for better seats is much better than the $150+ I spent before.   

Since my daughter is also a fan of the theater, she attends the musicals with me.  It’s a great mother/daughter outing that we look forward to once a month.  We choose a restaurant in the theater district and walk to the show after dinner.  Parking in Chicago can get expensive, so here's another useful bit of information - many of the restaurants in the theater district are "theater partners", provide free valet if you are seeing a show, and keep your car for you while at the theater.  We have enjoyed the summer season so much that I secured tickets for the fall/winter season.  

Remember - retirement is an adventure and slow and steady wins the race!