Retirement: It All Starts with a Budget

When you’re meeting with your financial planner, do you talk about your budget? If not, you should.

WOman goes through her budget at a desk
(Image credit: Getty Images)

I have endlessly been amazed at how often financial advisers focus only on managing money in the market as people approach retirement. Nothing good happens to people in retirement without a proper income plan, and yes, that involves assets that grow, but it also requires intense scrutinization of cash flow and expenditures.

Yes, it is important to have assets, and yes it is important to obtain a satisfactory rate of return. Still, if expenditures are not properly balanced for the amount of assets the persons have, the end result can be disastrous. Unfortunately, I do not see most advisers take the time and effort to actually review their clients’ budgets to determine whether expectations for the assets are adequate or not.

Some Millionaires Can’t Afford to Retire

I meet with people on a regular basis, and rarely do I find them to have a budget. Even though they have worked with a financial adviser for years, they are still guessing how much money they actually need in retirement to cover, not just their basic needs, but also their desired lifestyle. People come to my office, usually as excellent savers. Professionals who have faithfully put away hundreds of thousands of dollars (often millions) in their 401(k)s, and yet they are not sure they have enough.

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Why is that? Well, there can be many reasons, but they have at least one thing in common: No budget. I have seen people with $5 million, and as it turns out, it is not enough — because their spending is too high for the assets they have. Yes, they have enough to "get by," but a person or couple who have saved that much often have a lifestyle they want to maintain in retirement as well. Had they just looked at and created a budget, they would not be so surprised that they will not be able to live the lifestyle they are accustomed to now they are entering retirement.

Financial Advisers Sometimes Drop the Ball

Their current financial adviser consistently reviewed their return rate on their investments, but it rarely went beyond that. They never checked the "what ifs." What if I die too young? What if I live too long? What if my taxes go up in retirement? What if the market drops dramatically early in retirement? What if my spouse goes into a nursing home or we get divorced? How much of a pension is left if my spouse passes away?

I think you get my point. It starts with a budget and goes forward from there.

Retirement is all about cash flow! When a spouse passes away, taxes go up on the remaining spouse. How do you keep the cash flow intact? Cash flow, cash flow cash flow.

Investments are just a part of the equation. Managing risks to the cash flow is another part of the equation. Knowing and managing expenditures is part of the equation. Unfortunately, it is commonly ignored by financial advisers. If yours has ignored it, bring it up yourself. Get your concerns addressed, and for heaven’s sake, get a budget.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Pete Cymbalak, Retirement Planner and IAR
Founder, Empowered Financial Management

Pete Cymbalak is a financial professional with over 20 years of experience, focused on retirement strategies and asset preservations.  He is well-recognized as the host of the “Empowered Retirement” radio show airing Saturday on iHeartMedia at 9 am. He has been featured at the NASDAQ and Harvard Business Club of New York City.  Pete holds his values and ethics in the highest respect, which is evident in how he educates, advises and puts his clients’ best interests first.