Are You Overestimating Your Expenses In Retirement?
According to Forbes, developing a comprehensive retirement plan can help people work through the numerous investment, economic, and lifestyle decisions that need to be made before and during retirement. In particular, the affordability of healthcare in retirement is of great concern. If you’re just getting started, re-calibrate your current spending for retirement to assess whether you’re on the right track given your asset level and ongoing savings. Having a long runway before retirement can make it easier for individuals to reach the retirement lifestyle they want without making drastic cutbacks along the way.
As simple as it sounds, it’s not that easy to know where your money goes. Expenses are lumpy: perhaps you pay your homeowners insurance annually, don’t take a major trip every year, or pay quarterly tax estimates.
The slow creep of lifestyle inflation doesn’t help either. As income grows, it’s tempting (and easy) to gradually increase your spending—going out to eat more, buying a nicer car, considering cost less and less as you plan a vacation.
Retirement marks the end of a lifetime of saving for it. Pre-tax contributions are taken from your paycheck before you ever see it, so it’s easy to overlook the offset to your income. These contributions are substantial: in 2020, a couple under age 50 could save $39,000 per year in a 401(k) plan and $52,000 if 50 or older.
Adjusting your current spending to reflect a retirement lifestyle is a good place to start when trying to figure out how much income you’ll need in retirement.
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