How much money will you need to finance your retirement?
That seems to be the question on most people’s minds. One that concerns different ages and stages of life. The number one fear many people have is outliving their money.
While we can all agree the future is uncertain, most individuals who think about funding their retirement will have to make some assumptions. A significant assumption is anticipating spending habits.
Everyone is different. However, it is useful to consider how many retirees spend their money in different stages of retirement.
During the first phase many younger retirees want to try something new and start checking off items on their bucket list. Now that they have more free time and the energy for an active lifestyle, they focus on personal growth and adventure. That can include expensive trips.
Having the time and energy to be able to spend money means that early retirement can be expensive.
In the second stage, retirees have transitioned into their post-work life and a comfortable routine emerges. Spending declines as the energy of those well into retirement is not as strong as it was in earlier years. As the number of activities decline so does the cost of living.
In the final phase of retirement expenses can start to increase. Most of these costs will be health related and retirees also find they need help completing household tasks.
Growing old can start to be expensive. The most significant cost for many is moving to a retirement home. This is magnified if the remaining spouse still lives in the family residence.
The importance of anticipating spending habits in retirement is to estimate the total cost of retirement. From a financial planning perspective, future spending is a target.
The strategy now is to develop a financial plan that determines how you accumulate enough funds to support your desired lifestyle in retirement.
You will have to decide how much money you need to save every year, and what return on investment you need to grow your wealth. Understanding the return on investment will influence the type of investments purchased.
