Live long enough, and your retirement years can last nearly as long as your working life. When it comes to retirement planning, how do you know if you have enough money saved to live comfortably for the rest of your days? One way to find out is by practicing your retirement spending while still in the workforce. Think of it as a retirement rehearsal.
Most people need between 55 and 80 percent of their current income to live well in retirement. The actual percentage depends on various factors, including your lifestyle, specific retirement plans (like travel), health, and whether you intend to fully retire or still work at least part-time.
Retirement is a process, not a one-time event. The four phases of retirement consist of:
For each phase, you need a plan for managing your income. Consider the retirement spending smile effect (it’s called a “smile” because if you plot the numbers on a graph, the line dips down and then up in the shape of a smile). As you go into retirement, your expenses stay consistent. With aging comes less travel and other expenses, and the total cost of living goes down. Then there are the latter stages, in which expenses rise, typically due to increased medical costs.
Here are questions to ask about in your pre-retirement years to prepare for the coming decades:
Ask yourself questions about what will truly motivate you in your retirement. For instance, do you have a bucket list? Do you want to travel extensively after retirement, or perhaps purchase a second home? The answers to these questions can determine your spending habits in retirement.
A solid financial education can help you make informed decisions regarding your retirement income and expenses.
Different costs often accompany middle and late retirement. The key here is your health, and if married, that of your spouse. Health truly is wealth. Healthcare is the one major expense that virtually always increases as we age.
Some retirees still travel a great deal, even in late retirement. Most, however, cut back on this expense and stay closer to home or take less elaborate trips.
In later years, medical expenses go up considerably. Perhaps you will need to hire a home health aide, at least temporarily. You or your spouse may need to move to an assisted living facility or a nursing home. While you can’t foresee exactly what will happen, you can prepare for every scenario with the help of a financial advisor.
A regular financial health assessment lets you know whether your retirement goals are on track to achieve your desired outcome. For more information, contact a financial advisor at EP Wealth Advisors today.
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