Tip of the Day: Your Retirement Savings Should Support Your Current Spending Habits

By: Stacey Nickens

I start every morning with a creamy cup of coffee. Sometimes I opt for a sugary iced coffee, and other mornings, I love a bitter, steaming cup of hot coffee. Either way, I feel as if I’m starting my morning on a farm, sitting on my rocking chair and slowly sipping creamy goodness. At times, I’ve tried to change this routine, whether to cut down on caffeine or sugar. Yet, I always come back to my warm cup of Dunkin’ because it’s familiar and soothing. I may be stuck in rush hour traffic, but just one sip of coffee can take me back to Christmas morning with my daughters.

Like me and my coffee cravings, many people struggle to change their spending habits. Even those with the best of intentions (myself included) often fall back into our old, familiar, and soothing spending routines. Indeed, many spending diets are like actual diets: they last for a few months before you fall back on your old crutches.

While you should always ensure that you’re earning more than you spend, I never want my clients to feel ashamed of their spending habits. Shame leads to ignoring your spending habits and pretending they are something that they are not. With a shame-based mindset, you may go months without checking your bank statements or credit card bills, blindly hoping for the best.

Rather, I encourage clients to be compassionately honest about their spending habits. Regularly review your bank statements and credit card bills with curiosity instead of judgement. Ask yourself: For the past 6 months, what is my average monthly spending? You don’t need to know exactly how much money you’re spending on different services and items. An average monthly spending number will be enough to ensure you aren’t spending more than you earn. The average will also help you determine if you are saving enough for retirement.

Once you understand your average monthly spending, consider when you plan to retire. How long will you live exclusively off your retirement savings? For example, pretend you spend $5,000 a month on average and plan to retire at 65. You will conservatively spend $60,000 a year (not taking into account increasing medical bills and unexpected expenses). If you want to be able to support yourself until you’re 95, then you will need at the minimum around $2 million in retirement savings.

However, retirement savings math can get tricky. At ELM3, I use a helpful set of tools and graphics to map out your expenses through retirement. If you come to me with your average monthly spending, I can help you map out different retirement scenarios. These maps will show you how much you will need in retirement savings, given different scenarios, and I can then help you develop a personalized plan to help you reach this goal. Your retirement plan will be specific to your family’s needs and dreams. Indeed, hearing about my clients’s dreams and goals is my favorite part of my job. I get the privilege of assisting you in developing a manageable and reachable retirement plan that accounts for your current lifestyle. If you’re interested in working on a plan together, I encourage you to set up a meeting. I look forward to beginning this journey with you!

Disclosures: Past performance is not a guarantee or a reliable indicator of future performance. All securities carry a unique set of risks subject to a variety of factors. There is no guarantee that these investment strategies will work under all market conditions or that they are are suitable for all investors. This material has been distributed solely for informational purposes and should not be considered as individual investment advice or recommendation. Individuals should consult their investment professional prior to making an investment decision.