I’m guessing that when not-yet-retired baby boomers dream ahead into their retirement future, they spend much of their time thinking about retirement “wants.” I’m referring here to travel, hobbies, entertainment, and other activities that we expect to bring us pleasure in our retirement leisure but also cost money.
Thinking about retirement “wants” is fun and motivating but not if retirement needs are short-changed. I’ll explain my thought process on this.
You may think you “need” to watch cable and surf the Internet. If that were true, you would have perished in the 1960’s, before cable TV established a foothold. Or in the 70’s and 80’s, before the advent of PC’s and consumer Internet access.
And don’t get me started on cell phone data plans.
Yet we survived those barren technology years, did we not?
So everything beyond food, shelter and health care is a retirement want, not a need.
Now that we have agreed on this concept (you have agreed, haven’t you?), what do we do with it?
We use it in our retirement planning. In particular, we use it in our retirement income planning.
I propose that budgeting for retirement “needs” should be separate from budgeting for retirement “wants.” Planning to meet retirement needs should be a separate, priority task. The reason is that you do not want to take any investment risk in meeting your retirement needs. A failure in the “meeting our needs” department is not acceptable.
If you are fortunate, the income necessary to pay for your retirement needs can come exclusively from a guaranteed, inflation-adjusted source, such as Social Security. If not, you should consider setting up a “personal pension plan” using Treasury Inflation Protected Securities and/or I Savings Bonds, both available from the U.S. Treasury. Another option, although less secure, is a life annuity with an inflation rider.
After you have set up a retirement income plan to meet your retirement needs – for life – you can create a separate plan to meet your “wants.” In this second plan, it is OK to take some risk because the consequences of failure are not as severe.
A final thought: Let’s assume that, using my definition of retirement needs (food, shelter, health care), you have a solid plan to provide retirement income to meet those needs. Let’s further assume that you are one of those who insist that cable TV, Internet, travel, golf – you name it – is a retirement “must have.” What should you do now?
If you have retirement assets left over after providing for your food, shelter, and health care needs, there is nothing wrong with moving one of these other expense categories into your “needs” plan. You will also have to move more assets into that “needs plan, to cover the additional expense category.
That way, you can have your cake and your cable too – guaranteed for life!