If you invest soundly, live within your means and calculate carefully, you’ll have sufficient funds in your portfolio when you retire to rewardingly sustain you for the rest of your life. We try to drill that mantra into whoever will listen. But fewer people have a handle on how they will pace their retirement spending once they get there.
Knowing your target is important pacing-wise on this side of the race, too. Your ideal nest-egg size doesn’t just mark an endpoint; it also offers a clear sense of when you should stop investing aggressively and can move to safer, more conservative picks. And once you cross the finish line, how much of that golden egg you’ll be able to make use of each year depends on your retirement goals and priorities, and what kind of spender you are.
Think of how you take vacations now. Are they well-earned rests from the rigors and responsibilities of daily life? Or are they rare and coveted opportunities to adventure and explore the unknown? When vacation time is suddenly all the time, how you spend that time will heavily effect how you spend your money — and how much of it you’ll need.
What Does It Cost to Retire?
The standard advice is to expect to need between 70 percent and 80 percent of your working income. Social Security can (hopefully) be counted on to supply a portion of that, but the rest is on you. For your retirement portfolio to sustainably pump out those numbers, you’ll have to put in sufficient stores now. But “sufficient” is relative.
R & R Doesn’t Always Break the Bank
What you plan to do with your newfound extra time and freedom can have a significant impact on your resource needs. For some, lifestyle shifts like trading in fancy business garb for swimsuits and golf attire can actually make the leisurely life less spendy in some ways than the rat race. New stats suggest that the average American’s annual spending actually peaks at 45 — right up until health care costs climb in advanced age. Once you stop caring to keep up with the Joneses and find that couch that’s “just right,” some previously recurring expenses just go away.
…But There’s a Whole World to See
If you’re counting down to when you can set sail — literally or figuratively — for parts unknown, then living within your means is likely to get harder rather than easier. Travel is a major expenditure for retirees who are inclined and who can afford it. So, it isn’t enough to ask how much spending cash you’ll need in a typical month. How many fancier-than-average months must you plan for? And which opportunities do you not want to be priced out of?
Will Your Livelihood Pay Off Your Living Room?
Another major wildcard for prospective retirees is the mortgage. When calculating retirement costs, it used to be practically assumed that house and home would be bought and paid for. That’s less and less true, unfortunately. Nearly half of retired Americans find themselves still signing mortgage checks month after month. In a sense, paying into your equity is just as much a retirement investment as paying into your portfolio: A fixed income will go a lot farther without a monthly mortgage deduction. Even if it doesn’t quite get paid off, home equity can be converted into a reverse mortgage if you decide to go that route.
Calculating retirement costs is tricky and complex. While you should have some sense of what you want your ideal retired life to look like, we urge you to take those ambitions to an expert financial advisor to crunch the numbers. Lucky for you, we know a few who are eager to help out.