As you prepare or revise your retirement plan, one of the most important steps that you can take is to ensure that your projected future budget is accurate. Any oversights or poor estimations can, unfortunately, lead to a financial shortage in retirement. However, the flip side of this is that overestimating expenses may lead to unnecessary financial anxiety. It could cause you to scale back your lifestyle so dramatically now that you cannot maintain a comfortable lifestyle. In some cases, it could cause you to work for several additional years than you need to.
When you read retirement planning books and articles, you will commonly see advice, which tells you to estimate future financial needs at 80% of your current monthly expenses. However, the Bureau of Labor Statistics indicates that actual retirees spend approximately 25% less than they did in their working years. This 5% difference may not sound like much, but it can result in a significant reduction in the amount of money that you need to save for retirement. These are some of the major expenses that may decrease after you retire.
Your current transportation expense may include two-car loan payments, auto insurance on two vehicles and gas. The Bureau of Labor Statistics indicates that fuel expense may decrease by more than 30% annually after you retire. In addition, many married couples can downsize from a two-car household to a one-car household. This eliminates a substantial amount of money on car loan payments and auto insurance premiums.
Working adults may go out to eat more frequently than retired adults. For example, it may be convenient to drop by a fast-food restaurant on your lunch break at work or to pick up a pre-made meal on your way home in the evening. When you are retired, you may have more time to make thoughtful grocery store purchases and to prepare affordable meals at home. In fact, you may expect to spend up to 25% less on food after you retire.
The primary housing expenses for older adults are a mortgage payment, property taxes and home insurance. The Bureau of Labor Statistics states that almost 62% of retirees have paid off their mortgage, and this number increases as seniors continue to get older. While property taxes and home insurance premiums remain, the elimination of a mortgage payment can result in significant savings in your budget.
Insurance costs fluctuate in retirement. After all, as you get older, you may pay more on medications and related expenses regardless of the insurance plan that you have. However, you may qualify for auto and home insurance discounts. You also may no longer have the financial need to maintain life insurance, and you may be able to eliminate this premium from your budget.
As you prepare for retirement, you may believe that your entertainment expense would increase dramatically because you seemingly will have more time to spend on golfing or watching movies at the theater. However, as you get older, your energy level for participating in these types of activities can decline, and you may feel more content to simply spend time at home or in the company of family and good friends. You may expect to spend a decreasing amount of money on entertainment as you continue to advance in age.
As you can see, you could actually spend considerably less in retirement in many areas than you currently do. This information can help you to create a more realistic budget based on your projected lifestyle. Remember to review your retirement budget periodically going forward so that it remains as realistic as possible.
Investment Advisory Services offered through Retirement Wealth Advisors (RWA), a Registered Investment Advisor. Pennsylvania Wealth Management and RWA are not affiliated. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Pennsylvania Wealth Management and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.
Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Retirement Wealth Advisors.
Million Dollar Round Table (“MDRT”) is a membership organization. Qualifying criteria for membership includes attaining specified levels of commissions earned, premiums paid or income earned on the sale of insurance and other financial products. MDRT membership requirements include the payment of annual dues, compliance with ethical standards, and maintaining good standing with an MDRT-approved professional association. The MDRT logo and/or trademarks are property of their respective owners and no endorsement of Jason Bergey or Pennsylvania Wealth Management is stated or implied. MDRT and Retirement Wealth Advisors, Inc. (RWA) are not affiliated.