When preparing for your retirement, we tend to focus on a specific numbers such as $100,000 or $250,000 as the basis for our golden years. While accruing that amount is fantastic, to be more financially effective, you need to start thinking about your savings in a different way.
For this, I am not talking about creating a budget. Yes, creating a budget is the first step to a better future, but without understanding holistically what these numbers mean to you, you could be risking much more than just your financial future. That being said, when planning your retirement, you must start by understanding your future bills and expenses. While your annual income today, plus any guaranteed income such as Social Security, will define your standard of living, that number can only do so much when it comes expenses. Like it or not bills and expenses do not end when we retire. That is why I advise you to develop real numbers for your annual expenses. These estimated figures can help you conceptualize and priorities your finances in the most optimal and effective way.
Below, I have highlighted four of the biggest expenses you will endure during your retirement. While you assemble your budge, take those estimated numbers seriously and see what you can do to enhance your savings. These four big cost can help you manage any risk for your retirement plan.
For newly retirees, congratulations! After years of hard work, you deserve this break to reflect and enjoy your time with your partner and your family. One thing you still have to understand is that even though you left the working world that does not mean your expenses will stop. Certain expenses I am talking about include the following: rent, food, commuting cost, car payments (if driving), health insurance, etc. While you can rely on some of your family members, you want to make sure that you have a large sum that can accommodate all of these expenditures.
Activities and Family
In addition to your living expenses, you also need to take into consideration of any overheads, especially when it comes to activities and family. Many people dream up various scenarios such as attending art classes, traveling the country, or spending time with the grandkids as their future retired selves. While there is nothing wrong with that, you need to be aware that everything comes with a price. If you are looking to go big, like traveling, take into consideration flight trips, living expenses, food, and gifts as just a portion of your retirement. In addition, even if it is something mall such as ice cream with your grandchildren, make sure you have a rough estimated amount so that you can budget wisely.
Health Care Cost
Throughout the years, medical cost have historically risen faster than general inflation. Because of this, managing your health care cost can be critical challenging for retirees. The one thing you need to understand is that the future is very much unknown. What can happen a month from now, two-years from now, or even five-years from now is incredibly uncertain. Many people have estimated a little over $200,000 to cover any health expenses for themselves and their partner. If you were thinking about long-term care, the number only goes up. One thing to consider, especially for your retirement savings, is to purchase long-term-care insurance.
Inflation is defined as a sustained increase in the general level of prices for goods and services. In simple terms, it is the general increase in prices and the fall in the purchasing value of your money. Because of this, inflation can eat away at your purchasing power of your money over time. Make sure you hypothetically plan for these worst-case scenarios. This will allow you to push for a specific figure that can help you live a nice and comfortable life.