Secure your financial future with these retirement expense estimation tactics.
Key takeaways:
- Realistically estimating planned and unplanned expenses lays the foundation for accurate retirement planning.
- Know and thoroughly understand all possible income streams.
- Work with a professional to create a flexible expense strategy that makes voluntary and forced adjustments easier to manage in retirement.
Retirement planning is a significant financial priority for everyone. Recent data suggests you can expect to live longer these days, and as global life expectancy slowly increases, so too does the necessity for accurate retirement expense estimates.
Sadly, there is no crystal ball you can use to see into the future, but there are predictable bases and basic foundations you can use to better grasp the expenses you’ll need to cover in retirement.
Mastering these basics is the first step toward accurately estimating retirement expenses, and it starts with answering some general questions and breaking down your current expenses.
Breaking Down Your Current Expenses
Start by answering some quick questions:
- Do you know how much your typical weekly grocery bill is?
- How about your average utility bill?
- How much does gas cost per month, assuming you drive?
- How much is your mortgage, and how much time is left until you pay it off?
Knowing the answers to these and other questions helps you start to estimate retirement expenses. Naturally, nothing stays the same price forever, and inflation is unpredictable at best.
Luckily, an old favorite of financial experts can help you account for these changes: the “80% Rule.” This dictates that retirees should retain about 80%t of their annual pre-retirement income after leaving the workplace.
Why 80%? The rule assumes that some major expenses, like commuting costs and investments, decrease after you retire, while others that may be more essential in retirement, like healthcare and leisure spending, may increase.
Reviewing every lifestyle-specific factor helps retirement planners paint a clearer picture of what their financial futures will be like.
Now, let’s look at where the money to meet those expenses might be coming from.
The Social Security (SS) Factor
You can start collecting Social Security benefits as early as 62 if you choose, although the benefits you’ll receive are reduced by a small amount for every month you receive them prior to age 70 (when full monthly payments can be received).
The Social Security Administration recently calculated the average monthly SS payment for retired American workers as $1920.48. Of course, this average changes with time and depends on the status of the parties receiving those payments.
You can track the latest payment averages by following the SSA’s regular updates. You can also use their calculator to help you estimate retirement expenses.
Pensions, Savings, and Other Sources of Income
Many employers offer a pension upon retirement. Be sure you know exactly how much this will be, precisely when it will be paid every month, and if it comes with cost-of-living adjustments (COLA).
Cost-of-living adjustments allow your pension payments to keep pace with inflation and produce a more comfortable retirement lifestyle. The National Council on Aging offers good advice on calculating what your pension will provide.
But we also shouldn’t forget about your savings. If you’ve managed to squirrel away a little nest egg for the future, you may want to review where you’re keeping it.
Maintaining a savings account with a high annual percentage yield (APY) is in your best interest, as it’s another useful tool for estimating your retirement income.
Other income sources you may have include:
- Traditional IRAs
- Roth IRAs
- Stocks, bonds, or other investments
- Revenue from rental property
Consult with your pension plan provider, bank, and other financial entities if you’re in any doubt about your future income streams.
Clearing up any outstanding questions gives you greater estimating power and more peace of mind.
Speaking of which…
Make Insurance a Top Priority
No matter how healthy or in shape you believe yourself to be, medical expenses and accident frequency tend to increase as we age. Our mortality comes into sharper focus, making end-of-life planning and costs even more important.
Sudden medical, funeral, and repair bills can devastate your finances and potentially place the burden of paying them on your family if you’re not prepared.
Luckily, you can ease these stressors with the right insurance policies:
- Life insurance: Most pension plans will provide for a spouse, but life insurance will help your partner meet their retirement expenses more easily should you pass away.
- Auto insurance: Auto repairs and accidents can be expensive. The right insurance policy will protect your savings and help cover at least a portion of these costs.
- Home insurance: Are you familiar with the four key coverage areas for a completely protected home? Too many homeowners look to cash in on their policy after an event only to find out that whatever hit them isn’t part of their plan.
You deserve to live a comfortable retirement free from financial concerns. Following the tips we covered here today will help you accurately estimate your retirement expenses and live out your golden years in peace.
Secure Your Retirement With Help From NICRIS Insurance
NICRIS is ready to help you estimate your retirement expenses, answer retirement questions you may not have thought of, and provide peace of mind.
Whether it’s life, home, renters, car, or motorcycle insurance, we’ll guide you through the process of finding the coverage you’ll need to secure a comfortable retirement
Take advantage of our free and personalized insurance review, send us a message, or get an instant quote!