Enjoy It … While You Can !

Does my economic life change at the age of 75? Should I significantly increase my expenditure on travel or ticking-off my bucket list items up until then?

This was the thread of a conversation we recently had with a client. The client had thought through the issue in depth and argued that travel and the number of activities they could partake in, would reduce at that age and as a result their annual expenses would drop dramatically. When they asked us at Veritas what we thought of their plan, we had to take a few moments to consider all the issues.

Our role as lifestyle financial planners is to help people enjoy the fruits of their labour and their savings. When people come to us, one of our most powerful initial interactions is to get people to articulate and think about the life they would want to lead. In the end, we as their financial planner can tell them how long their money should last, based on a few assumptions. This client’s question was right up our alley!

Our first response was that in our experience of observing our client base, the suggested age of 75 years was a bit early for activities to start slowing down or ceasing. We think up to about 82 years would be a safer reference point. We noticed too that at around this age, peoples’ lives started to get a bit simpler and that some of the activities they took part in and enjoyed were no longer possible. As a result, our client was correct in pointing out that their rate of spending was going to reduce at that age.

“How long is a piece of string?”

Remember that wealth and lifestyle expenses can have radically different meanings for people. It is important to keep this in mind while reading and contemplating these issues. People who have substantial assets and live well within their means, do not have to worry about medical expenses or frail care. You could consider these people to be financially ‘free’. Others, who have lived their life to the fullest and not built up an asset base, would have to carefully consider their lifestyle choices at a later stage. Our role is to help you understand the consequences of these lifestyle decisions.

Why do lifestyle expenses slow down between the ages of 75 and 83?

A number of changes take place at this stage of a person’s life. Here are a few of the key things:

• As you get older, traveling becomes more difficult and strenuous. It is harder to go and visit family and grandchildren particularly when they may be scattered all over the world. Travel is a major expense for South Africans and with a weaker exchange rate this problem will only exacerbate going forward.
• Expenditure on vehicles drops considerably. Many older couples decide to sell one car as they really do not need a second vehicle and their vehicle expenditure therefore reduces.
• People move into retirement villages. The household running costs drop for many clients (household staff, gardening, water, security, etc.) as these are often incorporated into the retirement village’s levy. Many of these facilities offer meals, which is more economical than fitting one’s own grocery bills.
• People socialise less. We have heard that, especially since Covid-19, many elderly clients tend to spend most evening at home and rarely go out.

Carpe diem

It is important to live life to the fullest while you still can. You have no idea how your health will play out and what event could change your day-to-day life. A blind spot for many people is that they do not realise that a significant health issue to their partner can also have an effect on their own lifestyle going forward.

Financial questions to consider

There are a number of financial questions we should ask ourselves, before making a decision as to whether or not we should spend our money or save it. These include:

• Can I afford to ramp up my spending now and what if we hit tougher markets going forward?
• Will I run out of money?
• When I get to the magical number (75-82), will I be able to cut back on my expenses, even though I am still hale and hearty and can continue to do these different activities?
• Is your family comfortable with the fact that they may need to assist you at some point, if you go ahead and aggressively run down your investments?

Life and money meet at Veritas

This is where lifestyle financial planning comes into play. We are very happy to work through some of these scenarios with you. We would encourage people to get out there as much as possible in their early retirement, to visit their grandchildren and family around the world and get to the places they wanted to explore. But it is also always important to have a long-term view of the sustainability of your financial independence.