A Declining Balance

 

Henny Youngman, the aptly monikered “King of the One-Liners” used to tell this joke about his retirement savings and it went something like this...

“I just got off the phone with my accountant who assured me I have enough money to live on for the rest of my life. Provided I die by 5 pm this afternoon.”

Ba-da-bump.

While amusing, I am sure most of us and certainly a large portion of CPAs, have witnessed unfortunate cases of relatives or clients running out of their retirement savings far more rapidly than they expected. One former Wall Street old timer that I knew had saved close to $4 million by the time he traded in his 3-piece suit for a print shirt and an expensive set of golf clubs and yet less than 10 years later he was barely subsisting on Social Security.

The question that obviously many would ask is “how could that happen?”

The harsh reality is there are many unforeseen avenues that drain retirement coffers, some of which for many of us hit close to home.

To wit, below are some often overlooked causes as to why in many cases there never seems to be enough put away.

1.       You will live longer than you expected. A recent study showed that one out of every four people age 65 will live to 90. If you have put enough away for say 25 years and you live for 30 years that could present a big problem.

2.       Not planning for healthcare costs. It is estimated that healthcare costs for a couple could run in excess of $250K during retirement.

3.       No emergency fund for those big-ticket items. Many retirees do not figure in the high cost of things such as a new car or unwelcome home repair.

4.       A sudden change in spending habits. As an example, some retirees tend to accelerate their frequency of dining out or entertainment.

5.       You become a bank for your children. What parent hasn’t spoiled their children or lent them money when they needed it? That could easily get out of hand, warn financial planners.  

6.       The “T” word – taxes. Most overlook or basically just forget how large a portion taxes will consume from retirement savings. Remember: withdrawals from an IRA or a 401(k) will be taxed.

7.       The “D” word- divorce. Nothing will siphon your retirement savings quicker than losing half in a divorce.

8.       You withdraw too much money. A rule of thumb is that you should withdraw 4 percent of your total savings each year.  But one study found that even at 4 percent, the retirement largesse would not last the 30-year target.

That said, I’m hopeful, the bride and I are still on track to have enough squirreled during our golden years. Somehow TV dinners in a trailer park would not quite match my ideal retirement scenario.