Projecting wealth and sustainable rates of withdrawal is fundamental in preparing for retirement. While a drawdown and spending plan can help manage cash flow, it is just a plan. Life will continue to generate positive and negative surprises, which in turn will change any plan developed. In the late working years, addressing two large expenditures before retirement can go a long way towards minimizing surprises and thereby improve plan stability.
Home Makeover
Many retirees plan on continuing to stay in their home and dream of getting it just right. Significant upgrades to houses can easily exceed $100,000. Moreover, home improvement projects can creep. The size and nature of this expenditure makes it a good candidate for pre-retirement spending.
The backing of a pay check allows home owners to make intentional choices. This is not an excuse for poor project management or profligate spending, but simply recognition that such projects can have variability and come with a learning curve.
If the home owner is still employed, then a choice can be made between holding firm on the project budget verses delaying retirement. The right answer depends on values of the home owners. Delaying the project until just after retirement makes adjusting the project much more difficult.
Cutting off the Kids
Three possible child-related expenditures can hit around retirement time; 1) advanced education, 2) marriages, 3) first home purchases. Parents are under no legal or moral obligation to help with any of these expenses. However, many parents do want to help with one or more.
Determining the level of support (zero is an option) should be done before retirement. This should start with an open conversation with the kids. The parents should present their stance and reasoning. They should listen to the wishes and reasoning of their children. By holding this conversation before retirement, the option of a short delay in retirement to fulfill a child’s goal is possible – if the parents are convinced. It also helps children prepare, if they will need to bear most of the cost.
Uncertainty
The primary goal of the pre-retirement period is increasing wealth to provide a more comfortable retirement. But a comfortable retirement also means one with less worry. Addressing big-ticket expenditures in pre-retirement can assist in this goal by eliminating, reducing or preparing for them. Managing such expenditures add predictability to retirement plans. If you would like help in developing a retirement spending plan, including managing major expenses before retirement, please contact us.
