How do I Plan for Retirement Spending?
Planning for your retirement spending as early as possible is usually a good idea since it leaves more time for saving. Thinking about how much you'll need to spend each month when you retire can be difficult though, since it's impossible to predict every financial emergency or change in plans that may be necessary. Yet many soon-to-be retirees fail to take into consideration extra expenses they are able to predict, such as cost of living increases.
Income from investments can be a helpful source of retirement money, yet the return amounts can vary so widely that it's usually difficult to anticipate the result. No only that, investment fees can be high, so it's important to watch out for those when considering your retirement spending. While investments typically aren't guaranteed income anyway, pensions on the other hand often are. Check if any pensions you'll receive have an allowance for cost of living increases factored in.
It's best to prepare for a 3% or more annual inflation rate when saving for retirement. Retirement saves many people money in that they no longer have costs such as transportation to and from work, office clothing and dry cleaning bills, but that difference may easily be eaten up by inflation. Also, without adequately planning for retirement spending, any savings may easily become redistributed into country club fees or travel. No longer having a steady paycheck can really take a bite out of savings, so it's best to try and save at least as much as your former pay, if possible.
If it's impossible to save as much as you were previously earning, cutting expenses can help increase savings to prepare for retirement spending. For instance, downsizing to a smaller home, when it's a reasonably profitable time to sell and buy real estate, can lead to a chunk of savings in the bank as well as decreased utility costs. Getting your spending habits in order while you're still employed can help you increase your savings. Learning to keep to a budget can be extremely beneficial preparation toward living without that steady paycheck.
While it's impossible to anticipate every type of financial emergency that may deplete your retirement savings, tracking and cutting down on spending while keeping as much in the bank as possible is often the best way to prepare for what may occur. Oftentimes, the retired parents of adult children who lose their jobs or have other financial difficulties don't plan ahead for if they will want to help, so retirement spending suffers. Retirees should also plan for their own emergency health care needs or other possible situations that might occur.
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