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www.insideHALTON.com · OAKVILLE BEAVER Thursday, August 9, 2012 · 10 Retirement pitfalls: running out of money by overspending T his week, our column is on the risk to retirees of overspending and how that could cause many to run out of money and become financially dependent on others. Last week, we discussed the risk of running out of money during retirement as a result of inflation, which is one of the biggest risks facing retirees. Inflation has been a risk for a long time and good financial planning accounts for that risk. The rate of inflation is out of our individual control, so it is crucial to consider its potential damage to your long-term cash flow. Unlike inflation, overspending is within our control. Dollars & Sense By Peter Watson Overspending is spending money you cannot afford to spend. Most of us would think overspending happens when individuals or families buy something that is too expensive. Presents The 17th Annual A Fundraising Initiative of The Rotary Club of Burlington Lakeshore Going on a two-month world cruise would be a good example if the couple could not afford that type of luxury. The danger for many is spending money you cannot afford to spend but doing so because you see certain purchases as an everyday requirement. You may think you are spending wisely and even being frugal when you are in fact overspending. This is where the theory of financial planning and the reality of life part company. The theory is easy. Assume you retired today and you have calculated you have enough money to live happily for the rest of your days. You understand inflation so you have accounted for that when doing retirement-living, cash-flow projections. You have wisely relied on Statistics Canada inflation figures as a guide to your future spending needs. But the problem is these inflation figures measure the cost of a specific group of goods and services over time. Practically speaking, we have more things to buy that cost us more money. Compare a retired couple now as opposed to several decades ago. They are more active because they are in better health. Additional activities, however, can be an added expense. Twenty-five years ago, cellphones, data plans and high-speed internet were not even part of a retirement budget. The trend towards adding these new "requirements" of life is continuing as a result of changing technology and lifestyles. How do you plan your expenses for items that you will likely own and spend money on in the future when that item has not yet been invented or considered a necessity? Grandparents, for example, have evolved from not understanding or owning cellphones to now having the latest model with coverage good enough to be able to exchange pictures with their grandchildren. Retirement planning has become a moving target. Yes, you must still do the conventional retirement cash-flow projections, but be flexible on how this is done. Consider adding a contingency fund that will cover unanticipated costs. At the same time review your cash flow projections regularly so you can see if you are living beyond your means. Use this cash flow projection process as a tool to manage your lifestyle and ensure it can be maintained during the full period of your retirement. Most people say they want to enjoy their retirement years. That requires having the cash flow needed to support that lifestyle. Maintaining a specific way of life is the prime objective of retirees. It is in everyone's best interest to monitor spending to be able to live within that desired lifestyle. -- Submitted by Peter Watson, MBA, CFP, R.F.P., CIM, FCSI. SAVE UP TO $2700 ON NEW FURNACE & AIR CONDITIONER $700 OFF HI-EFFICIENCY CENTRAL AIR BIGGEST SALE EVER! WAS $ PRICE MATC H GUARANTEE. CALL FOR DETAILS. · Free Installation · 10 Years Factory Warranty 2690 3990 NOW OVER 120,000 SATISFIED $ CUSTOMERS 1990 * REDUCE 96% HIGH EFF DC MOTOR A/C OR FURNACE DIAGNOSTIC ONLY $49 $2000 Off Hi-Efficiency DC Motor Gas Furnace (96% EFF) WAS $ NOW $ Program Sponsor CanadasLargestRibfest.com AUTO GROUP | LAG.CA Labour Day Weekend! Aug. 31st - Sept. 3rd Spencer Smith Park, Burlington · Largest independent dealer in Ontario · Over 120,000 satisfied customers · Family owned business for over 20 years · 9 showroom locations in Ontario WHY AIRE ONE? *See dealer for details 1990 * A+ RATING · 150 licensed technicians · 24 hour emergency service · Registered tssa-wsib-hrac-bbb member · Satisfaction guaranteed THE FORECAST CALLS FOR 9 Locations To Serve You Better! HEATING & COOLING 905-849-4998 www.aireone.com · 1-888-827-2665 recycle REUSE