Have You Calculated Your Retirement Spending?
The financial industry has traditionally focused on retirement income to evaluate the probability of one not outliving their money. As the economy stalled with many baby boomers reach retirement age with less than an ideal retirement savings. The focus has shifted to calculating and controlling retirement spending.
The first question is do you have a spending budget? Do you know how much money goes out every month and where it goes? Do you a projection of spending in the future?
Analyzing your retirement spending will help you understand where your money is going. If you are spending more than your are earning, then you can decide whether or not you can or want to cut some of your expenses or if you will need to augment your income, maybe by getting a part time job.
In addition to looking at current expenses, you should also project your spending needs in the future. Traditionally, new retirees spend more money on travel and leisure. As people get older, they tend to spend more money on health related costs.
If you don’t have a retirement budget, here are a few things you might want to consider:
Housing-many retirees have their home paid off, but baby boomers may face retirement with a mortgage payment. You may control your housing costs by downsizing, or renting. Single people, in particular are exploring different living options, such as house sharing, a la Golden Girls. Many retirees (although, not as many as your think) relocate to communities with a lower cost of living.
Transportation-many people have reduced transportation costs after retirement. Some couples may be able to eliminate one car. Without a commute, you may be able to control your transportation costs.
Food-You may have more control over your food costs. People tend to eat less as they get older and you’re less likely to have to buy food for a growing family. Eating out can take a bite out of the food budget, but many people join gourmet groups or participate in community gardens.
Clothing-With not having to pay for a professional wardrobe, clothing costs may go down. Of course, if you fill your empty days by going shopping, the clothes budget can go up.
Medical costs-If you had employer supported health plan, you medical costs can go up with retirement, especially if you retire prior to age 65. When calculating medical costs, include prescription, eye and dental costs.
Entertainment/travel-These expenses tend to rise with retirement. But, they are discretionary, so are under your control. There are a number of ways people control these expenses. Consider house sharing, entertaining at home, and travelling closer to home.
Just as your income may fluctuate, you may be able to have more control over your retirement spending. As you plan and transition into retirement, make sure you make a spending budget. You will want to look at it periodically and make adjustments as necessary to your retirement budget.