Tom’s Tales of Retirement Planning Mistakes
Transcript:
Katie Nealis:
What are some mistakes you have seen some clients make that you want to warn others about?
Tom Vaughan:
Okay, I’ll give you a story actually, because it’s kind of interesting. I had a client who came in, actually got laid off in the 2000 downturn, kind of like middle management and a tech company was making a lot of money, like 250,000, a year, had a nice home in a nice area, but really, you know, didn’t save much, maybe had about 250,000 saved and was still pretty young, you know, 57. So, but at that time, it was really difficult to get a job in the tech business, because the, you know, the whole tech arena had exploded, and it couldn’t find job couldn’t find a job. And it really were hiring younger people at that time, too. So he basically decided to retire early, which was a bit of a problem, because he didn’t have a lot of money saved, but he did have a very nice home with some good equity. So he sold that home, and he moved into a smaller place here locally. The problem was that he and his life continued to live the same lifestyle.
So if you’re trying to live a $250,000 lifestyle, you’re going to need a lot of money, I mean, way more than he had. And he just, they just didn’t have flexibility to make an adjustment to their lifestyle. And it’s sort of a mental flexibility, it’s something I’d work on prior to retirement. Because once you get into retirement, things aren’t that certain, you know, you might have a pension, you might have social security, and some of those things might be pretty stable. But the rest of the things in the stock and bond market, I mean, even the banks, right, the bank money is stable, but it used to pay a percent, now it’s paying a quarter of a percent. So it’s, so it’s, you know, that’s not stable either. So having that flexibility to adjust your lifestyle, because this, this couple would come in, and I’d get out my calculator, say, look, you got three years worth of money left, you know, at this rate that you’re spending, and then they come in at 12 months worth of money left, and they eventually spend it all and then they sold their place here and moved to Minnesota to get a cheaper place, capture that differential. And that’s where I lost track of him. But that story happens, people can get kind of addicted to their lifestyle, and addicted to their spending. And so, you know, if you’re going to have a big lifestyle, you’re going to need a lot of money, it takes a tremendous amount of money, especially with the variability of what happens out there.
So I would say flexibility and making sure that you have that in place. So that when there are downturns, you can just adjust and deal with it, and make it a temporary situation instead of a permanent one where you’ve spent all your money. Because gonna be hard to get that back, especially for this couple because they were pretty young, it was going to be in a long time that they needed the money.
Easan Arulanantham:
So Is that why you always recommend that you pay off that low mortgage loan before you retire? So you have that flexibility? Out of all those big fixed costs?
Tom Vaughan:
Yeah, and if you can’t do it, before we retire, make it a goal, you know, pay it off, pay off a little bit extra, you know, get rid of it. Yeah, exactly. Because it gives you flexibility. It, you know, if you have a $250,000 lifestyle, and you know, it’s all variable costs, in other words, you know, travel and different things that you at least have some shot of cutting down if you want to, and then you can be more flexible versus let’s say 200,000 of that is locked up and things that you can’t get rid of when things go south. Man, you got no flexibility. So yeah, exactly right. Create that flexibility.
Mentally, I would say the mental part, and it’s more important, I’ve seen more trouble with mental and we all see this, we see, you know, people with health problems that can you know, smoking isn’t gonna kill you. I keep on smoking, right? There’s things that are hard to stop doing sometimes. And so spending, overspending is a habit, but then structurally, you’re exactly right. You know, creating that structure so that you have that flexibility, you know, things are good, who can spend even more than 250 if that’s your goal, but you know, when things are poor, be able to kind of, you know, adjust that and that and that’s keeping that fixed cost, that structural fixed cost low. And if you can’t get to retirement, just keep working on it, because not everybody gets in the perfect situation. But just keep working on it. It’s possible to get there.