It’s so obvious that money we spend today can’t be spent in retirement. But do we really understand the true impact? Let’s assume you are thinking about a big family vacation that will cost $10,000. What is the real effect on your retirement of taking this trip? Let’s say you are 55 and plan to retire at 67. Common financial planning models say this trip reduces the amount you can spend in retirement by $800 every year for the rest of your life. (Actually your spending will be even lower because of inflation; in your 2nd year you can spend $816 less and in your 3rd year $832 less etc.) Take this trip AND buy a $10,000 fancier car than you need? Now you may be on target to spend $1600 less per year every year in retirement. If you have loads more money than you can spend in your lifetime then go ahead and splurge! But if you are like most people and can’t seem to save enough for retirement then it’s critical that you understand you are making a trade off between today and your retirement years.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- Blog: www.clientpriority.blogspot.com
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