A Retirement Mistake

A woman in her 30's recently told me that she was not worried about over spending.  She said her parents are very wealthy and are going to leave her a ton of money.  She spends every dime she makes and actually runs into financial problems frequently because of her over spending.  

The family makes over $100,000 per year in income.  They have a nice home but they live on heavy amounts of credit debt.  They have spent more than they make and have maximized their borrowing capacity.  They are having to live paycheck to paycheck just to pay the debt service and basic living expenses.  They don't have any extra money to do the things they would like to do.  

The ironic aspect of this story is how her and her husband frequently complain about what they don't have and how unfair life is because of the financial struggles they live with.  

I have given them advice about cutting back and "investing" in their future by paying off debt and reducing the eating out and unnecessary disposable spending.  If they paid off the debt, backed off the demands of day to day expenses, and started saving some money, they could retire at a reasonable age and have a good life along the way.  Their response to this was, "we don't have to do that because my parents have a ton of money and we will get that inheritance."

Now, first of all, let me tell you my strong desire for my children to not meet these people and learn this philosophy.  I don't want my children looking at me like a hungry buzzard looks at a wounded antelope, hovering over it waiting for the poor animal to die.  This does not seem very healthy.  I also hope my children are able to see they probably won't see any of the inheritance until it is too late.  

The average age of death is in the 80s.  All my grandparents lived well into their 80s and two are almost 100 and still living strong.  That means my children will not see inheritance until they are at least 60 years old.  Then, many people find that the later years of a persons life can take all of their money due to medical costs or assisted living.  I would hate to bank on having my parents give me money for my retirement and then find out is was gone!  Kinda difficult to make money and start saving at that point in life.  Also, what about the 40 or so years prior to retirement.  Don't you want to have financial freedom during that time as well?

This woman and her family will probably continue to live paycheck to paycheck and have financial struggles.  They will reach retirement age and find a healthy and vibrant mother and father spending their inheritance.  Thus, they will continue to work and struggle.  They will end up like the majority of Americans... unable to retire and a burden to the rest of us who cut back and invested.

I know another woman who was divorced in her early 50s.  She didn't have a dime to her name.  She found a job making $10 an hour.  She simplified her life and only spent what she had to spend.  She put every penny over her basic living expenses into savings and investments.  15 years later she retired.  She had a few raises during that period but never made more than $15 an hour.  She is not almost 70 and lives in her own house, has money to pay her bills and doesn't have to work.  She doesn't live extravagantly but it taught me a couple of lessons.  Oh, I forgot to mention that she had always thought her parents would give her a big inheritance.  Her father passed away almost 12 years ago.  The money was much smaller than she thought.  The expenses to bury him and pay for estate issues was much higher than she thought.  Her mother continues to live (98 years old now) and the expenses for her mothers continued health and upkeep are very high.  She will received nothing from that inheritance.

The lessons learned:

1.  The earlier you start saving and investing, the better life will be when you can retire.

2.  If you save and invest, you can retire.

3.  Your parents money and wealth accumulation may not benefit anyone.  But, if the inheritance does have a benefit it should be to your children, not you.  Inheritance is usually two generations away.

4.  You can live a good life if you don't spend too much today.  Our family motto is "You can have what you WANT to have, if you do what you HAVE to do".  When you get this backwards, you will have a lot less.

If we can all heed this message and do the right things to prepare for later life, we will not be a burden and fewer people will be a burden to us.