One of the trickiest aspects of saving for retirement is estimating your future living costs. A lot of people put so much time into calculating this, yet inflation often rears its ugly head and causes a change in lifestyle and budget.
Interestingly, most people assume their expenses will remain the same, and data from the National Retirement Institute shows that 44% of workers aged 50 and above think their retirement expenses will remain the same after retirement, 34% expect their living expenses to decrease, and only 22% expect it to increase.
What Will Your Living Costs Look Like In Retirement?
It’s almost impossible to predict what your retirement expenses will be as you age. But it’s safe to say that most of your bills like groceries, clothing, and other necessities will remain the same.
However, it’s essential to have in mind that the price of these items will increase over time due to inflation. But that aside, you can’t possibly use the benchmark during your working days for your retirement days. Some costs like transportation may go down because you might spend less time on the road. However, your insurance and car payment will remain the same.
In terms of housing, your housing costs may reduce in retirement as you may have paid off your mortgage. However, property taxes may climb over time, and you also must do more repairs and maintenance.
Other retirement expenses that are likely to increase in retirement are healthcare and leisure. An average 65-year old man spends about $189,000 in retirement, while a 65 years old woman will spend up to $214,565 annually.
And since retirement means you’ll have more time in your hands, then your cost for outings, entertainment, and others may go up; as you keep yourself occupied.
Saving To Fund Your Future
Typically, most seniors need at least 80% of their previous income to live comfortably in retirement, which means that most won’t see a drastic drop in living costs. Experts always argue that you should set aside 15-20 percent of your earnings for the future so that you can have enough income replacement.
Furthermore, data from the Employee Benefits Research shows that 46% of retirees spend more money in the first two years of retirement, not less. 33% or retirees also experience these six years into retirement.
You should be prepared financially for the living costs ahead. Keep in mind that social security will only pick up a part of your retirement cost. So, there’s a need to save consistently to accumulate enough funds to avoid the financial stress many faces in retirement today.
For instance, if you commit $500 a month for 35 years, you’ll end up with roughly $1 million if your investment generates an average of 7% annually.
If you are older, consider maxing out your 401(k). Though it may be challenging, it’s certainly worth it.
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Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
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