How Do I Know What I’ll be Spending in Retirement? It’s at least 10 Years Away!?!


21 Jul
21Jul

I get this question all the time.

 In my opinion, spending habits don’t just magically change. They were developed over your life time so start your retirement planning process early to accommodate them. 

Here are the steps I take with people who don’t know projected spending in retirement:

Know what you are spending NOW:

BASIC LIVING EXPENSES

  • What are your “have-to-pay-every-damn-month” bills?
  • What are your quarterly bills? (Divide by 3 to get a monthly average.)
  • What are your six-month bills? (Divide by 6 to get a monthly average.)
  • What are your annual bills? (Divide by 12 to get a monthly average.)
  • What do you spend on groceries per month?
  • What do you spend on gasoline per month?

SAVINGS

  • How much of your take home money goes into savings each month?

 DISCRETIONARY SPENDING 

  • How much do you spend on “Extras” not in any of these categories?

We will use these numbers in the planning software and let it calculate the inflation in your projected lifetime.

The software provides medical costs projections for Medicare premiums at age 65 on as well as private health insurance premiums if you retire prior to age 65.

RESULTS

  • If the software shows your spending habits match what you’ve put away for retirement, that’s great!
  • If the software shows your retirement accounts cannot handle that kind of spending, we discuss your options:
  • Plan to spend less in retirement.
  • Increase retirement contributions.
  • Adjust asset allocation within your current retirement accounts.
  • Create ways to earn passive income now and later.
  • Sell some of your other assets to help.
  • Work longer at your full-time job.
  • Retire but work a part-time job.

Each one of these options can be explored within the planning software to get you in the confidence zone for retiring.

Retirement planning is not a one-and-done activity. The plan should be addressed each year to account for any curve balls life has a way of throwing at people.

A plan just helps guide you on how best to handle them.


Photo by Mikhail Nilov from Pexels

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