2.1 Finances

“Money doesn’t buy happiness but it calms the nerves.”

Joe E. Louis, US Singer and Author

Financial preparation is at the core of later life preparation for many people. It is one of the domains best tackled at an early stage. However, people tend to have negative expectations about their financial future and accordingly, and unexpectedly, it is not the domain that people pay the most attention to in their later life preparation.

“I am not in a position to build up reserves, I have to make the best of it, hope to stay healthy for a long time and be able to work.”

(Comment by a German Interviewee, March 2021)

When you move into retirement and later life, your income and spending change. You might (have to) stop working or ease off but you still might want live in a larger apartment, go on holidays or eat in a restaurant, take care of your loved ones or need money for long-term care.

So even if you don´t have the chance to build large reserves, it is still time to give your financial affairs an once-over.

Let´s start with some financial literacy and have a look at what we require and for what we really need to spend money. This visualisation from the book “Retirement Income Redesigned” gives a good idea about prioritizing our expenses, from basic needs to wants:

  • Survival money – the amount of money you simply need to survive
  • Safety money, e.g. health care costs, health insurance or portfolio planning so you don’t outlive your money
  • Freedom money, needed to do the things that bring joy and fulfillment like travel, education, hobbies…
  • Gift money for people and causes that deserve your help
  • Dream money to realise dreams and find true happiness and meaning

Elizabeth Warren in “All Your Worth: The Ultimate Lifetime Money Plan” makes it even easier and distinguishes between wants, needs and savings. She introduces the 50/30/20 budget. According to this, 50% of your income should be dedicated to monthly expenses that are needed, such as housing, transportation and groceries; 30% can go toward wants or discretionary spending; and 20% should be dedicated to savings or paying debts. But is this always possible? A certain flexibility might be needed but what definitely is important is to start thinking about the expectations for later life including income and costs.

Have a look at the following steps:

1) Check your basis: What is your legal pension? What legislation is there in your country to ensure financial security for older people? If you are already in your later life, also check if there are initiatives that provide discounts for services like transport, health, culture…?

2) Educate yourself on finances: You do not have to become an expert on investing or the stock market, however, a basic financial literacy will be helpful for your own planning but also to make good, informed decisions. The Erasmus+ project “Selfmate” offers a free course and different material on financial literacy.

3) Get an overview and, if you don’t already do so, bring order into your finances. “Selfmate” created a spreadsheet where you can contrast your income with your expenses and allocate them according to Warren’s 50/30/20 rule.

4) Think ahead, which costs will remain stable even with a change in income when you retire, which costs will be additional in the future.

For financial provision, there are very often good support offers, sometimes state-supported, sometimes private. See what is available in your area and get advice on the different options, but remain somewhat cautious in your decision. It is your financial future and this is an area where there are also many interests.

References & further reading
  1. Evensky, Harold; Katz, Deena & Updegrave, Walter. Retirement Income Redesigned. Master plans for Distribution – An advisor´s guide for funding boomers´ best years.
  2. “Selfmate.eu.” Digital Financial Literacy to Count in the Moments That Count, http://selfmate.eu
  3. Warren Elizabeth, All Your Worth: The Ultimate Lifetime Money Plan