Retirement – Determining Expenses

Determining your retirement expenses can seem like an overwhelming task, but breaking it down can help you easily assess your retirement needs. To help determine your retirement expenses, ask yourself these questions.

  1. How long do you expect to live? You cannot determine how much you will need without first determining for how long you will need to plan. One way to determine how long you can expect to live is to use a life expectancy chart. Remember also to consider your health and family history when estimating your life expectancy.
  2. When are you going to retire? Typically, you don’t have to retire just because you turn a certain age. Your retirement date should be based on your specific circumstances.Get help from the Social Security Administration in deciding when you should retire
  3. What are your essential expenses? Essential expenses include housing, food, transportation, health care and insurance. Don’t forget mortgage payments, credit card payments and other types of loan payments. This may also include any financial responsibility you may have for an elderly parent, sending a child to school or other responsibilities. If you don’t know what you will spend on these items, a good way to do this is to start off with your current expenses and then modify it. If you don’t know what your current expenses are, keep track of them for a year. 
  4. What are your discretionary expenses? Discretionary expenses include travel, entertainment, hobbies, charitable giving and other items not essential to your day-to-day life. NOTE: Be sure to consider how your lifestyle might change over the next 25 to 30 years. You could find you actually spend more during retirement, especially on things like travel, hobbies, entertainment and health care.
  5. Do you have an emergency fund set aside? This buffer will ensure that you avoid using assets earmarked for income or growth purposes and help you handle life’s unexpected expenses. As a general rule of thumb, you should save about three to six months worth of expenses for your emergency fund. Make sure this fund is in a liquid, interest-bearing account. You want to be able to access it without penalties at a moment’s notice, but will also want some return while it sits there aiding your peace of mind. Also, remember to replace emergency funds as you use them, so they’re available the next time you need them. Another option that you should strongly consider is setting up a home equity line of credit (HELOC). This will allow you to tap into your home’s equity in case of a financial emergency. Once you set up a HELOC, there is no cost to have it until you use it.
  6. Are you going to give any inheritance? If you know that you want to pass down some of your assets, you will want to include this in your retirement expenses to ensure that those assets do not need to be used to provide income for yourself.

    NOTE: Don’t underestimate your retirement expenses. Your plan may be affected by inflation, taxes, market volatility and unexpected health care costs. Quickly determine if your retirement plan is on track – and learn how to keep it there.

The information provided in this page is not intended to be legal or tax advice.  You should consult your attorney or tax advisor for information that relates to your specific circumstances.

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