Summary

In this conversation, Mark Struthers discusses the often-overlooked topic of retirement expenses, emphasizing the importance of understanding spending patterns and inflation in financial planning. He introduces the concept of the ‘retirement spending smile,’ which illustrates how spending typically changes throughout retirement. Struthers highlights the need for informed decision-making to ensure a healthy and wealthy retirement.

Takeaways

-Expenses are a crucial yet often neglected aspect of financial planning.
-Many individuals approaching retirement lack clarity on their spending habits.
-Inflation significantly impacts purchasing power over time, especially for retirees.
-The retirement spending smile illustrates changing spending patterns in retirement.
-It’s essential to model different spending scenarios for accurate retirement planning.
-Gradually reducing spending can help manage retirement funds more effectively.
-Healthcare costs should be factored into retirement spending models.
-Informed decision-making is key to achieving a successful retirement.
-Understanding the risks of longevity and inflation is vital for retirees.
-The goal of financial planning is to ensure a fulfilling retirement experience.

Sound Bites

“They might not really have a firm grasp.”
“Inflation being a big one, a big factor in that.”

Chapters

00:00 Understanding Retirement Expenses
02:56 The Importance of Inflation in Retirement Planning
05:53 The Retirement Spending Smile Explained
12:10 Making Informed Financial Decisions for Retirement

Curious about working with Mark:
https://www.videoask.com/fd9svtp2l
www.SonaWealthAdvisors.com

Disclosure:

Investment advisory services are offered through Sona Financial LLC (DBA Sona Wealth Advisors, Sona Wealth, Sona Wealth Management), an investment adviser registered in the state of MN. Sona Financial only offers investment advisory services where it is appropriately registered or exempt from registration and only after clients have entered into an investment advisory agreement confirming the terms of engagement and have been provided a copy of the firm’s ADV Part 2A brochure and document.

This video or article is for educational purposes only and is not exhaustive. Nothing discussed during this show/episode should be viewed as investment advice. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.
This content has not been reviewed by FINRA.

Edited transcript:

Hi, welcome to Healthy and Wealthy Retirement. I’m your host, Mark Struthers. Today we’re talking about expenses, a financial planning topic that doesn’t get enough attention.

When people in their 50s and 60s approach retirement planning, they often face two challenges: many don’t know their current spending, and they’re unsure about their future retirement spending. Some think it’s a simple calculation that can be done in an hour, but it’s more complex than that.

Let’s break down our approach to retirement spending:

Understanding Spending Patterns

We use five different models to analyze retirement spending scenarios, but I’ll focus on the main ones:

  1. Inflation-Adjusted Model This is our most conservative approach. Using 3% inflation as an example:
  • If you spend $5,000 monthly at retirement
  • Year 1: Increases to $5,150
  • Each subsequent year: 3% increase on the new amount
  • Over 25-35 years, $60,000 annual spending could grow to $120,000-$150,000
  1. Retirement Spending Smile This model reflects real-world spending patterns:
  • “Go-Go Years” (Early Retirement): Higher spending due to travel, activities, and excitement
  • “Slow-Go Years” (Middle Retirement): Natural decrease in spending as activities slow down
  • “No-Go Years” (Later Retirement): Different spending pattern, with healthcare costs increasing

Practical Implementation:

  • Start with normal inflation adjustment (e.g., 2.75%)
  • Gradually reduce spending growth (subtract 1%)
  • Result: 1.75% actual increase rather than full inflation
  • Never decrease actual dollars spent, just slow the growth
  • By age 90, this could mean 25% less purchasing power than the full inflation model

Healthcare Considerations:

  • Healthcare costs are calculated separately
  • Use higher inflation rates for medical expenses
  • Factor these costs into the overall plan

Making Informed Decisions:

  • Don’t use reduced spending projections just to retire earlier
  • Consider your personal situation and comfort with risks
  • Remember: The goal isn’t just portfolio survival
  • Focus on safely maximizing your retirement experience

The key is making an informed decision based on realistic spending patterns. While you want to be conservative in planning, you also don’t want to miss out on enjoying your early retirement years when you’re most able to do so.

Remember, what’s enjoyable at 65 might not be as appealing at 85, just like what’s fun at 25 often isn’t as exciting at 45. Plan accordingly for a healthier, wealthier, and happier retirement.



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