Expenses Change with Time
Some people expect to have higher expenses in the beginning of retirement and lower expenses later on. They reason that there will be more things they want to do and places they want to explore while they're younger. Other people look ahead to how their retirement will look and decide their expenses will stay pretty level. Deciding how you might want to live in retirement and then accounting for health costs, moving to another home, and the finances of your family are important considerations.
Level Versus Front-Loaded Retirement
Instead of planning for high expenses at the beginning of retirement to cover those things you always wanted to do, plan your living expenses without those extra expenses and then use a separate savings plan for the extras. It's hard to reduce your lifestyle once you've grown accustomed to a certain way of living. By planning your base level of spending and then creating savings baskets for the extras — such as big trips or sizable purchases such as a boat or RV — you'll avoid the temptation to overspend.
Map out the extra things you'd like to do. Calculate the savings needed to accomplish them using one of the calculators listed in the resources section of the book, and start saving using your money baskets.
Planning for Increasing Health-Related Spending
One of the reasons to be careful about underestimating your income need in retirement is the vast unknown cost of health care. Right now your employer may be paying your premiums, but in retirement you'll be paying them. Medicare is available at age 65, and many people currently have access to retiree health benefits through their employer. Right now, retirees covered by Medicare can pay from $150 to $400 each in premiums for various all-inclusive HMO-style plans. Budget at least that much into your retirement plan.
Where You'll Live
You might be among the many people who prefer to retire in the same place you're living and working now. Being close to family, friends, and familiar support systems are important, after all. Or you might be among those looking forward to a warmer climate or the opportunity to move either into a city or out into the suburbs or the country. It's important to allow some flexibility in your thinking about where you plan to live. If you've moved a lot while you've been working, don't expect that you'll change in retirement and want to stay in one place. If you've lived a long time in the same place, allow for the desire to move either for a change of climate and lifestyle or to be closer to children and grandchildren.
Now is not the time to overinvest in your housing. If you're now in your highest-earning years and your kids have left home, avoid the temptation to demonstrate your new wealth by going overboard by redoing your home. Be careful to calculate whether you'll be able to recoup your investment in a home project before you retire and how the added maintenance expense and real estate taxes will affect your budget. If the kids are grown, now is the time to be sure you've completed any deferred home-maintenance projects and that your house is reasonably up to date with current styles.
Your kids will want to visit, but they don't have to stay with you. Don't jeopardize your retirement nest egg by planning a big addition so you have room to have the kids back home. Pay for a hotel when they come. You all need your privacy and you need to save on the added taxes and maintenance of a bigger house.
If you think you might want to live in another city, region, or even country, start visiting now. Plan vacations in the areas you might want to live in. Make these trips off-season — both to save money and to see what they're like in their least desirable seasons. Pay close attention to costs of living while you're there so you can refine your retirement income goals.
