Do you have a spending plan based on maintaining your lifestyle? How long can you maintain your current lifestyle? Have you stopped imagining what retirement lifestyle you want to enjoy? Is it visiting grandchildren, taking trips around the world taking time for some hobby the corporate rat race wasn’t allowed for?
No matter what the budget, it can help you make those dreams come true. Not just a spending plan, but one that includes today’s what and tomorrow’s possibilities. Let’s start from tomorrow. Do you know how much you’ll need at the start of your retirement to enjoy the dreams you have today? If you’re like a lot of people you haven’t stopped counting. An actuary has the advantage of having a decreasing number of people to help make those calculations.
In fact, most people I talked to don’t know that there is someone called an actuary who does those calculations. Certain professionals such as Certified Financial Planner™ Professionals and Charter Retirement Planning CounselorsRSM People have been trained to help determine how much they will need and how to fund future amounts.
For many, the more important question becomes: “How much can I spend in the future without spending any money.”
A new research is taking place that questions some long-held assumptions about how much (what percentage) a person can spend without saving money. Properly managed pensions have historically provided that assurance to retirees.
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A Certified Financial Planner™ professional will typically not ask you to save 10% of your income. Instead, knowing your specific needs, wants, and desires and beliefs will yield a specified dollar amount, such as $562 per paycheck.
They will likely have discussed your risk tolerance, your risk requirement and various savings amount options. I haven’t met many people who are saving money based on what retirement lifestyle they want to enjoy!
Then as we get older, our healthcare costs are likely to increase. Medicare does not cover everything. Out of pocket expenses. According to the Fidelity Retirees Health Care Cost Estimate, in 2021 an average retired couple age 65 could need about $300,000 in savings (after tax) to cover health care expenses in retirement. In my experience, no one has thought of this category of moving expenses as part of their retirement spending plan.
If you think about it and can save in a health savings account (HSA), you may be able to fund that amount with a lot less than that out-of-pocket. You can invest in an IRA like an IRA. An HSA lowers your current tax bill and is tax-free when withdrawn when used for health care expenses. Neither an IRA nor a Roth IRA has all three of these benefits. Unlike an IRA or Roth IRA, there is no phaseout for higher income earners. Is this in your budget?
What ‘What-Ifs’ Should Be in Your Spending Plan?
None of us like to think about unpleasant situations like death, disability and unemployment. Do you have reserves or can you say rainy day funds if you become unemployed?
Some have relied on emergency funds of 3 to 6 months, but your cushion may need to be increased. Is it realistic to believe that you will be back in a job with a similar income in 3 to 6 months?
I know people who haven’t found that. While some believe unemployment insurance will provide relief, many find that it does not replace the income they were earning. In addition, your unemployment benefits may run out, depending on how long it takes you to find a new employment opportunity.
While many people know about life insurance, most do not believe that death before their retirement years will knock on their door. Still, there are families who regularly suffer from loss of primary earner’s income. The loss of even a non-primary can have devastating effects when the survivor has to pay for services rendered by the deceased.
Have you budgeted for an insurance policy that will replace your expected income till retirement? Does that amount include the amount you should be saving for retirement?
While they may have great insurance to pay most medical bills, they may have deductibles, co-insurance, and copays. Also, while most medical bills can be paid, what about other household costs that are paid for by their income?
A disability income policy is a key factor in taking on the risk of a disability taking away from your life goals.
Start creating your spending action plan
The best time to make spending plans is now. The start of a new year is a great time or really any time. No matter where you are, you need a plan to take you to the next step. Once developed, find an accountability partner or personal financial planner to keep you on track!