American baseball legend Yogi Berra once said, “If you don’t know where you are going, you might not get there.” Surely his “Yogiism” was about retirement savings, because if you don’t have a sense of your retirement goals and expected lifestyle, you certainly won’t know how much retirement income you’ll need, and you may not save enough.
While it is difficult to accurately predict exactly how much money you’ll need when you retire, some simple planning and estimating will certainly help you move in the right direction. Setting appropriate savings and investing targets starts with guesstimating your retirement expenses.
Predicting your expenses in retirement can be more art than science. The best guide is to look at where you spend your money today–and then think about whether these expenses are likely to increase, decrease, stay the same or even disappear altogether when you retire. Keep inflation in mind. And remember that your assumptions could change between now and your retirement date.
Bills, bills, bills–to pay!
With that in mind, let’s explore some of the things you’ll need to consider. The following table is an outline of expenses that may or may not change as you enter retirement.
When it comes to retirement savings, without a proper road map you are unlikely to get to where you need to be. And where you end up instead might not be where you had expected.
Expenses that may…
Stay the same Decrease Increase
Household expenses Mortgage Healthcare insurance
Rent/lease payments Saving for retirement Healthcare expenses
Transportation Work-related expenses Entertainment, hobbies and leisure expenses
Charitable contributions and gifts Education Travel