Financial Life Stages Are Changing - Good or Bad?

Throughout most of the 1900’s most households’ financial life went through the following stages:

Accumulation – 20 to 35 years
  ·    Building up debt as many purchases require borrowing (Mortgage, credit cards, student loans)
  ·    Furniture is second hand, vehicles are used
  ·    Getting your education and starting career expertise
  ·    Budget is usually kept very controlled from necessity
Mid Accumulation – 35 to 50 years
  ·    Start saving for retirement,
  ·    Paying down big debt like mortgages and car loans
  ·    Some purchases are made for quality rather than price (vehicle, furniture)
  ·    Saving for children’s education
  ·    Get serious about financial planning with tax and estate planning

Pre-retirement – 50 to 65 years
  ·    Intensively save for retirement
  ·    Pay off debts and stay out of debt
  ·    Review home and available health care facilities (2 storey homes not good for retirees)
  ·    Try to spend time with grandchildren
  ·    Save and take an exotic vacation once a year (Hawaii, Mexico, France, a cruise)
Retirement
  ·    Prepared financially and mentally
  ·    No Debt
  ·    Income now RRIFs, Pension, govt benefits
  ·    Active retirement, change in lifestyle (volunteerism, family)
  ·    Possible increase in spending for a few years
  ·    Health costs increase
Stable retirement - 70s & up
  ·    RRIFs decreasing
  ·    Discretionary spending decreases
  ·    Medical expenses increase
  ·    Estate Planning and Wills
  ·    Long-term care, more help form children

While this is still a general life cycle, there have been some differences over the past 15 years.

1. More and more people are taking on a mortgage at an earlier age, and the houses they are buying are often not starter homes with the lowest payments. This has resulted in a young household having much higher mortgage payments as a portion of their income than their parents from 30 years earlier.  Good or bad, this can make life very tough for a young family.
2. People of all ages are taking exotic vacations.  They used to be viewed as a rare treat that you had to save a few years for, but now they are an annual event that most people put on their credit cards, some even twice a year.  This is money not being put towards debt or retirement savings.  While a vacation is enjoyable, and even needed, people could end up paying for their vacation for a long time afterwards.
3. Baby Boomers have taken on larger houses going into retirement, even though the kids have all moved out, and many are retiring while still paying for mortgages.  This can put in incredible strain on finances in retirement as your income drops, your free time increases, but you still have mortgage payments to make.  While the room is nice, it often means more yard care for an aging couple.  There are 2 very good reasons why the retirees used to always downsize the home in retirement 1. It is less expensive, and 2. It is easier on the body when it comes to cleaning and maintenance.

The life cycles are general stages of life that you and your financial planner will plot your income, savings and debt around.  Make sure your decisions are based on your needs and not just what everyone else is doing.  Even at 60, peer pressure can make you spend money when you can’t really afford it.
Jerry