Do You Know How Much Money You May Need for Retirement?
Maybe you’ve looked at your current spending levels and estimated that you’ll spend roughly the same amount each month in retirement. Maybe you’ve tried to imagine your day-to-day expenses after commuting and your daily coffee run disappear, but spending on travel, hobbies and health care may rise. Or maybe you haven’t thought about this much at all.
Regardless of how you’ve approached this question, these are five factors that some people tend to overlook when they’re estimating how much they’ll need in retirement.
1. Cost-of-Living in Your Retirement Location
Is there a chance you might move? The cost-of-living in different areas of the nation varies dramatically. While many people consider housing costs, variations in energy, gas, food and taxes may also affect your bottom line. The good news? You might get more of a break than you thought. Some states, like Pennsylvania and Illinois, don’t tax distributions from retirement plans, according to the Wall Street Journal.
2. Lifestyle Goals
Do you imagine sailing, traveling and front-row opera house tickets during your retirement years? Or would you be satisfied with low-cost hobbies like hiking, camping and reading library books?
Your lifestyle choices can make a major impact on your retirement spending. Once your mortgage is paid in full and your childcare costs disappear, you might find that your discretionary spending — or lack thereof — may play a big role in your bottom line.
3. Health and Long-Term Care
Older people generally spend more money on health care and long-term care, according to the Consumer Financial Protection Bureau (CFPB). Furthermore, aging and declining health may necessitate home modifications as a result of physical limitations, which may also cost thousands, the CFPB says.
4. Length of Retirement
How long will you need your retirement portfolio to last? If you delay your retirement by a few additional years, you may do more than just save additional money. You may also reduce the number of years in which you need to draw down from your 401(k) and IRA assets.
5. Age of Your Spouse
If you’re married, don’t just calculate your retirement expenses based on your age. Make sure you’ve saved enough for your spouse, too.
The age at which each spouse taps into Social Security benefits can play a large role in determining your lifetime income. This Social Security benefits estimator tool can help you make decisions that take both of your ages into account.
Overall, your retirement costs can be impacted by many wide-ranging factors. When you’re planning for retirement, don’t just think about your current income or spending. Take the bigger picture into account to help get a better idea of your retirement needs.