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Ask Dave

Don't Destroy Your Future

Frank and his wife have investments of $1.2 million and a monthly income of $7,350. They have no debt. They're spending all they have. Should they be saving out of this money anyway?

QUESTION: Frank in Los Angeles and his wife have investments of $1.2 million and a monthly income of $7,350. They have no debt. Even though they’re spending all they have, should they be saving out of this money anyway? Dave thinks they’re spending all they can and shouldn’t go any farther.

ANSWER: In a decent year, your money should still grow. You’re not killing the goose. It’s still laying more golden eggs than you are consuming. Everything’s paid for, and you’re 65. I think you’re spending all you can. I don’t think you need to go any further than this. A good rule of thumb that we tell folks is if you can live off of 6–8% of your investments per year at retirement, then you’ve got an adequate nest egg, which would put you at somewhere around $60,000 a year. You’re spending a little more than that, but you’ve got more than that coming in. You’re okay. I’m not excited about you doing this, but it’s not devastating, either. It would be nice if you guys could spend less than $8,000 a month.

I think you need to monitor your spending, and it sounds like you are. You’re able to give me the numbers. I don’t want this spending pattern to slip up to $10,000 or $12,000 a month. But I don’t think it’s necessary for you to crack the whip and not enjoy anything and get back down to $2,000 a month. You need to be doing things intentionally. It’s okay to say your house is paid for, your net worth is considerably over $1 million, you’re 65 and disabled, and you’re going to enjoy some of this money but not to the point that you destroy it and thereby your future.

Statistically speaking, if you live to 65, you have a real high likelihood of making it to 90. So you’ve got 25 years on average. If your health is failing, that may not be the case. We don’t want to go hog wild here. You guys have been savers and have been frugal most of your lives. For you to do a budget that feels luxurious is okay with me.