What does your retirement look like? I mean specifically…
Has anyone ever asked you this question? Or have you asked it of others? What was their answer? What’s your answer? People typically spend more time planning for a vacation than planning for retirement, but isn’t that was retirement is . . . one big, long vacation? What does your “vacation” look like?
People always talk about when they want to retire, but they don’t usually get specific when asked, “What are you going to do in retirement?” They’ll give generalities like traveling, spending time with family, etc., but is that specific enough to make sure they’ve got enough funds to last several years? Traveling, for example, costs a lot more if it includes annual trips to Europe versus domestic road trips. And what about hobbies? Flying planes is expensive, and if you plan to woodwork, does that include buying equipment and building a workshop?
Before you can decide if you’re saving enough, you of course have to know when you want to retire, how long you think you’ll live, and have some type of general idea of what type of monetary legacy you’ll leave your kids. But you also want to get detailed about how you’ll spend your days. Something else to think about is purchasing power. If you were to buy an item that costs $100.00 today, assuming a 3% inflation rate, here’s what that same item would cost in the future (baseline date – June 18, 2014):
5 years $115.93
10 years $134.40
15 years $155.80
20 years $180.61
25 years $209.38
30 years $242.73
So now that you’re thinking about specifics, here are some questions to ask yourself:
1. How expensive are my hobbies now?
a. What do they cost me monthly? Annually?
b. Will I have different hobbies in retirement?
c. What might those hobbies cost?
d. Will they require major purchases, like a boat, special equipment, etc.?
2. What are my travel habits today? Will they change in retirement?
a. Do I stay at 4-Star hotels, hostels, or sleep in a tent?
b. Do I travel abroad or stay local?
c. Do I do short weekends or am I gone for weeks at a time?
d. What do my current trips cost me?
e. Do I eat out for every meal or stop at the grocery store in each town?
f. Do I drive or fly everywhere?
g. Do I/will I have pets, and if so, will they be kenneled?
h. How much will I travel each year?
3. What spending habits do I have today? How might they change in retirement?
a. What’s my current budget for groceries, eating out, entertainment, etc.?
b. Will my spending go up or down in retirement?
4. Will I have the house/car paid off? How will my current monthly expenses (utilities, etc.) change in retirement?
If you consider things like these, along with when you plan to retire, you can get a better idea of the kind of money it will take to get there. And don’t forget to include FitFin’s budget and expense tracking tools in your plans! These will help you get a handle on future spending, and also help you understand what you’re currently spending. Check us out and sign up for free at http://www.fitfin.com.