David and Lucy were 66 and nearing retirement. They were frugal by nature and had busted their guts their whole working life squirreling away as much money as possible.
We completed retirement projections and to their delight if they invested soundly, they could retire comfortably. This included $100,000 for a few projects around the home they had been putting off for years.
"We've scrimped and saved all our lives and it's nice to finally let go of the purse strings a little," David said.
When they came in for their annual review a year later, we discussed how the "little" projects were going, and Lucy sheepishly said, "We've actually taken on a few more. David wants a new motor in his F100, we decided to a little more around the house and pay our kids' HECS debt. We figure a few little things won't make a big difference long term."
"So..... you've spent a little more than expected, hey?" Sheepishly Lucy admitted, "I have to confess Ben, I lost count a while ago but I'm pretty confident it was only another $50,000."
We started tallying it up and bloody hell instead of the planned $100,000 they had spent a whopping $350,000. Their jaws hit the floor in disbelief. "We are usually so careful, I'm embarrassed it got away from us!"
Regardless of all my warnings, they had fallen headlong into a common retiree trap that I call the 'Brand Spanking New Retiree Trap' (BSNRT).
The BSNRT is simply when someone who has always been careful with their money gets access to a big bucket of money like their retirement savings. Against all good intentions, they see $500,000, or $1 million in the bucket, and think, "I've scrimped all my life and won't live forever, so another $10,000 here for the kids, another $50,000 there isn't much". It's death by 1000 cuts and ultimately, they all add up.
Just to be clear, I'm an advocate for life not just being about money. Life can be short and you want to enjoy it, but it's important to be honest with yourself about whether you are spending more than you planned to, and the consequent impacts on your retirement funding plan.
We re-ran their projections and worked out their money would run out before they did which is a big problem. The best laid retirement plan had been derailed after 12-months.
Was it the end of their financially secure retirement? Not immediately but if it had continued it sure would have been. We made some tough decisions and got them back on track.
I see it happen frequently to farmers and graziers as most spend their lives cashflow poor. When retirement arrives and they sell or succession plan the farm, a big, never-before seen bucket of money becomes available, and the trap is set.
My advice is to get good financial projections completed by a skilled financial adviser and regularly track your actual spending. It isn't the everyday expenses that get you, it's the bigger ones, as they always add up quickly.
And remember, often the more frugal a life someone has lived, the easier it is for them to fall into the Brand Spanking New Retiree Trap (BSNRT).
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