There are all kinds of “rule of thumb” numbers floating around for how much income you’ll need in retirement, but they are just that — guidelines, not hard and fast rules that will necessarily apply to your particular situation. Budgeting for your retirement is a bit of a guessing game however clarifying your goals and expectations will make it easier.
How do you know what you’ll need to retire? That depends entirely on how you end up living in retirement. If you’re intending to stay in the same place with the same spending habits, then take your current monthly expenses and deduct the things that may no longer apply — things like:
Sounds good so far, doesn’t it? Well before you start celebrating prematurely, there are things that may cost more. That’s where your vision for retirement comes in.
You may plan to stay right where you are and do the same things you do now other than going to work. Fair enough. Nevertheless, you may still need to add a few things:
Very few people simply stop working without substituting other activities and those other activities often come with a price tag. Clear your mind and think about your “typical day” and “typical month” in retirement.
While doing this visioning exercise, don’t limit yourself to your current environment or activities. Think expansively.
You could keep your home for a few years to transition into retirement and then downsize. Or you could downsize first, sell the house, buy something less expensive and put the difference into investments.
Maybe you don’t need a house at all. A condo or even an apartment may be right for you. While apartment rents tend to increase over time, they also give you the flexibility to move at least once a year.
Some retirees take mobility to a higher level by selling their house and cars and buying a motor home or boat to live on. While you can spend extravagant amounts on either of those, just as you could on a new home, you can also find good deals on pre-owned. You could save on property taxes and have a high degree of mobility.
An increasing number of Americans are opting to stretch their retirement budgets by moving to an area with lower costs, either in the U.S. or outside of it. The five U.S. states with the lowest cost of living are Mississippi, Arkansas, Oklahoma, Missouri, and New Mexico.2 Although if you currently live in Massachusetts, Oregon, New York, California, Washington, D.C., or Hawaii almost anywhere else you move is probably going to be cheaper than where you are now.
While exact numbers aren’t available, the State Department estimates that about 9 million Americans live outside of the U.S.3 Many expats choose to relocate to save on housing and other costs of living, including medical care. You may be able to maintain a significantly higher standard of living during retirement by moving to another country.
Retirement isn’t just a time to quit working; it’s a time to enjoy the fruits of all of those years of labor — to open your mind and your horizons to new experiences, people, and places. Getting it isn’t hard. And with a good plan and an advisor on your side- you certainly can!