It’s nearly impossible to know how much money you’ll have in your pocket until you know how much money you’ll need. Retirement is meant to be enjoyed and full of new adventures like traveling the world and simple pleasures like spending time with the grandkids instead of clocking into work. A big question when faced with the realities of funding your retirement is “What kind of lifestyle can I afford in retirement?”
The closer you get to retirement, the more you’ll know what your retirement lifestyle will be. A good general rule of thumb is to expect to spend between 55% and 80% of your annual income while you’re still working every year throughout retirement. This is known as your retirement income replacement ratio. This retirement income needs to be able to cover the following top retirement expenses:
- Living Expenses - As people age, their spending habits tend to change. On average, there is a significant drop in spending for retirees aged 65 or older. Generally, retirees can expect to spend about the same on food and transportation, less on housing, and more on healthcare.
- Health Care - Health care costs can be unpredictable and expensive, even if you are on Medicare. Depending on which Medicare insurance you decide you can have a maximum out of pocket that is thousands of dollars, or you can pay thousands of dollars in insurance premiums. In addition, you will still have to pay for deductibles and co-pays for health and prescription drug insurance. So, over-preparedness doesn’t hurt when budgeting for this to account for above-average expenses. In fact, the average retired couple spends $315,000 on health care alone throughout their retirement.
- Extracurricular Spending - How you spend your time in retirement can also have a major influence on how much money you have. Staying closer to home, doing hobbies and projects around the house, or spending more time with family totals much less than traveling around the globe. The more active a lifestyle you plan to live in retirement, the more costs you need to budget for. It doesn’t mean you can’t take that Alaskan cruise you’ve been dreaming about. It just means you need to plan for it!
People don’t plan to fail; they fail to plan!
Having a second and experienced pair of eyes on your retirement income plan can help give you the clarity and insight you need to look confidently towards a successful, comfortable, and enjoyable retirement. At Rockdale Financial Services, Inc., we can give you the professional opinion and guidance you need to make the proper adjustments to your spending habits. Contact our office today at 732-695-2100 or 727-250-0250 to schedule your complimentary consultation! We look forward to helping you!