Retirement Shock Number Two: Where Is All My Money Going?

Your expenses may not go down after you retire so plan accordingly.

This is the second of several articles on “retirement shocks” and how to avoid them. (You can read the first one from the link on the left hand side of this page.)

How much money do you spend each year now? Will you spend a lot less after you retire? If not, can you afford to spend at the same level you did when you were working?

Here’s a safe bet: Plan on spending the same amount after retirement as you did before retirement.

Most people planning to retire expect to spend much less than when they were working. You can probably list some of the major reason you plan for your expenses to be reduced.

* You won’t have the same commuting costs;

* clothes will cost less since you can wear shorts and sandals all the time if you choose to;

* no more lunches out of the office every day in an expensive downtown environment;

* no more parking fees at the garage near your office;

* you won’t need that second car for commuting so you will save on car insurance and the cost of the car;

* I am selling my house in the city and moving to a rural area where prices are lower.

But here’s another side to retirement.

You may find your expenses are the same and could even be higher if you are not careful.

It’s true that your expenses may change from those you have when you work each day. But you will have more time to spend your money and, if you are like most people, you will find interesting ways to spend.

And, according to the Wall Street Journal in citing research by the Center for Risk Management and Insurance Research at Georgia State University, the more you earn before retirement, the more you will spend after you walk out the door of your agency for the last time as an employee.

Very few federal employees will qualify as being exceptionally wealthy. But most federal employees are much better off financially than most American retirees. This may be especially true of those who have worked under the Civil Service Retirement System (CSRS) for their entire career.

People who are are affluent but not exceptionally wealthy find themselves buying new cars (to take a trip now that they have the time); they remodel their homes (“We have wanted to do this for years but never got around to it”); take on new and expensive hobbies (“I always wanted to learn how to fly and now I can!”).

People who are exceptionally affluent don’t change their lifestyles much. They have already bought the new car, new home and the Cessna airplane if they really wanted to. Most of us couldn’t do that and have to be careful.

In short, you will have the time to do a number of things you have wanted to do but did not have the time. Just remember those dream vacations and new hobbies can cost a lot of money. Financial planners often advise their clients to plan on spending as much after retirement as they did before they retired. Not planning carefully can take you from the idyllic beach in Hawaii and back to Uncle Sam as a re-employed annuitant (if you are fortunate enough to get a job that pays that much) or working at your local retail store to help make ends meet.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47