During our working years we don’t experience a whole lot of income fluctuations and so don’t have to flex our budget all too much. When retired, most of our income is derived from investments and a little budget flexibility can smooth out the ups and downs of our investment performance.

I wrote a similar post on being financially flexible. I’d like to delve into my actionable steps in budget flexibility for physicians in retirement.

Retirement Income

The savvy early retirement enthusiast will aim to achieve most of their retirement income from investments. Cash just doesn’t have the same income-generating power, requiring way too much of it to replace spending in retirement.

An investment, on the other hand, can produce income in forms of dividends as well as appreciation of the underlying asset.

For some investors dividends are bond yields, for others it’s rent from an income property. And some investors earn dividends through lending note investing.

A stock portfolio, for example, can generate a 2% dividend income annually and we can sell some funds every year to produce the rest of the income that we need.

Nothing wrong with CD’s and annuities, but investing in the securities market historically has had better returns than these. It’s just a more efficient way to generate retirement income.

Retirement Spending

Spending creep and budget blindspots are normal even for the most frugal of individuals.

Imagine you are retired and you go to buy your coffee every morning. After a while you also order a croissant and soon that black morning coffee becomes a cappuccino.

You went from spending $3 every morning to $10. It’s not a lot in isolation but it may not be your only creeping category.

Maybe you never cancelled your life insurance, nor your comprehensive auto policy after you retired. Maybe you kept your credit card which has $200 annual fees. All these are budget blindspots which are easily overlooked and ignored.

In retirement we tend to spend more on things we want and less on things we need. This can add to the spending creep. Fortunately, the peaceful state of being retired remedies a lot of that wasteful spending urges.

Investment Performance

If you’ve followed the real estate trends the past couple of years, you will have undoubtedly picked up on the high valuations investors are placing on real estate. Crowdfunding real estate websites are recruiting a ton of physicians who are entering en masse, as though this investment can never go bust.

Unfortunately, investments are cyclical for reasons that economist or financial analyst can’t pinpoint. It has so many moving parts that it’s hard to predict where the yarn will unravel.

A diversified portfolio has better returns and adjusting one’s portfolio based on risk is critical in order to prevent bailing out early on a good investment.

Inflation

Even if you are invested in CD’s or bonds, inflation can wreak havoc on your portfolio’s spending power. Fortunately, such devastating inflation is short-lived but it can still manage to lower your spending ability.

Bear Market

What about a bear market? Imagine that stocks and bonds hold their current level for the next 7 years. They are said to ‘stagnate’ or have a flat performance.

Sure, you’ll continue to earn some dividends and there will usually be some inflation-adjusted fund appreciation. But a 2% investment income will hardly give you morning wood.

Enter, budgeting flexibility. Your investment will do what they will on their eventual path to appreciation. Budgeting flexibility lets you smooth out those dips because you can spend less when there is less passive income from your investments.

7 Budget Flexibility Tactics

Is your spending tied to you happiness? If so, it’s critical that you amass a ton of wealth and do everything possible to prevent a financial disaster.

From everything I’ve learned so far, relying on your spending to bring you happiness is a recipe for disaster. There are many ways to be happy without having to rely on spending.

Here is my list of 7 things that you can cut from your spending in order to maximize your budget flexibility when you’re retired.

If you have a financial advisor then they should be able to point all these out to you. If they don’t then maybe you’re not asking the right questions or you need a new financial advisor.

Your FA can’t force you to do any of these. Maybe practice these moves now before you’re retired to see what it takes.

1. Driving

Driving out to the beach or mountains a few times a week will wear out your engine, tires, and increase your gas spending.

During lean economic times you could avoid upgrading your car every couple of years. While you’re at it, wash it less, drop the excess insurance coverage for a while, and rent it out on Turo when you don’t need it.

2. Traveling

Hold off on vacations during times when you need to stretch your budget. Travel is expensive even if it’s just to visit your snaggletoothed cousin. Taxi, airport food, plane ticket, hotel, lost luggage, and souvenirs.

Desperate to travel? You can do a local staycation by renting a hotel for a week near you where you can enjoy the pool and still drive to your house to prep some meals.

Or consider doing house-sitting if you must leave your state or country. There are professionals websites dedicated to this for people who need their plants watered and their pets looked after.

3. Food

Cooking at home can save a lot of money. Many physicians have kitchens that would make professional chefs jealous. They have kitchen equipment for every kind of cuisine.

Fancy ingredients are pricey and a little too Emeril Lagasse in your kitchen.

Rice, beans, onions, yams, spinach, and a few avocados. BAM! You got the most amazing fucking dishes you can make with these cheap ass ingredients.

4. Gifts

What’s with parents and gift buying? I’m not saying that you shouldn’t give a gift but you don’t have to get a 10-yo a $50 Amazon gift card, regardless of what other parents do.

Make the kid a bracelet. Take them out and teach them how to throw a frisbee. There are many ways to display the affection that a gift is meant to represent – it’s hardly a gift card at Amazon. 

5. Gym

Exercise, gym, personal trainers, and your masseuse. These can be skipped without risking imminent obesity, I assure you.

Budgeting flexibility doesn’t mean suffering but there are many ways to enjoy some exercise. Go to the driving range or buy used golf balls and go swing at a junk yard.

I love the shit out of rock climbing and at $100/month it’s not a cheap sport. But I can go buy a $30 hang-board and practice my moves at home for a few months/years if needed.

6. Entertainment

Entertainment includes the movies, arts, drinks with friends, museums, and plays. There are ways to enjoy these things for free.

Alternatively, consider volunteering for various venues and in exchange they will give you free entrance to the performance and sometimes give you free tickets to share with friends.

7. Housing

Rent out one of your spare bedrooms if your budget needs to slim down majorly. Otherwise, hold off on lawn-care, major renovations, and big repairs.

A roof can be temporarily patched if necessary to avoid a whole roof job. You can push off the kitchen renovation and not heat the pool for a few seasons.