The Herald Bulletin

November 8, 2013

'Big Joe' Clark: Plan for retirement detours

The Herald Bulletin

---- — Budgets are tough things to understand. There are fixed costs and there are one-time expenses and because the latter is usually bigger chunks, such as replacing cars, roofs, going on vacation, etc. — they are considered by most to be huge challenges for retirement planning. Indeed they can be, but they are also better understood by most, as they are a stated cost where fixed and essential expenses have a tendency to increase over time. That is called inflation.

The federal government is in charge of the nation’s fiscal policy. Congress determines where we spend our tax dollars each year in the budget. They are fully aware things get more expensive every year and as a result, without one vote being cast, our expenses rose in 2013 by more than $400 billion dollars, essentially built in rising fixed costs. Fortunately a normal household doesn't have to deal with these large numbers and you can "vote" to make changes when necessary if there will be a shortfall. You may have a discussion with your spouse about what to cut but there usually isn't a household shutdown based on the discussion!

There are a couple rules of thumb when planning for a retirement budget and understanding fixed or what some call essential expenses. Inflation does exist, especially over the long term, and this cannot be ignored. Currently we appear to be in a more deflationary period. But I would caution you to use a 2.5-3.5% annual increase in most of your fixed expenses. Fixed by the way are things you have to have like utilities, food and even cable TV.

One major mistake we see pre-retirees make is that they say to themselves “We will stop this expense or reduce that cost at retirement.” Bad plan! This is not how you want to begin retirement but it does provided confidence during the planning stages. It is false confidence but makes you feel better today none the less.

If you go on a diet to achieve a goal — dieting is very similar to reducing expenses —you can give up chocolate or something else that you love in order to succeed. The discipline works and you hit the goal. It’s very difficult to lose weight in the long term while going cold turkey with your favorite indulgence. That is where anger management is required!

People try to convince themselves that at retirement they will go from good wine to box wine or buy used cars rather than new cars and my favorite is that they will give up cable TV or at least the movie packages upon leaving the work force. These may sound like plausible ideas and make the numbers work on paper, but they are simply not realistic for happy transitioning into the next phase of your life.

Creating an accurate budget is challenging and perhaps even as difficult as following one. In order to better understand your future, your chance of success, you need to know the numbers and be realistic in your assessment of the future.

Joseph “Big Joe” Clark, whose column is published Saturdays, is a certified financial planner. He can be reached at or 640-1524.