Major Expenses that Happen During Retirement and How to Prepare

What do you need to include in the retirement expenditure budget? This is a daunting question every retiree must ask themselves. The future remains uncertain, and consequently, plans may not be relevant by the time you retire. Employee Benefit Research Institute (EBRI) found that many people do not try to calculate how much they will need in retirement.

Therefore, it is of paramount importance to prepare early. There are several expenses you need to budget for in retirement. The Bureau of labor statistics (BLS) lists the following as the significant annual expenses for older families.

• Housing
• Transportation
• Food
• Pension and social security
• Healthcare
• Entertainment
• Other expenditures – include personal care products, alcohol, tobacco, education, life and personal insurance, reading among others.

Note that old people from the age of 55 to 64 years tend to spend more than older people from the age 65 to 74 years of age.

How to prepare

There are five steps needed to get your retirement plan on track. Additionally, there are unknowns in the retirement plans, but it should not scare you from making one anyway. It is better to be prepared than to be caught off-guard without a working plan in your old age.

1. First of all, consider your current budget

This is the most challenging step in preparation. However with a current budget then its easier to use it for future projections. If you do not have an existing monthly budget, then make one by recording your monthly expenditure.

For variable expenses, like electricity bills, use the average yearly bill by adding up all monthly bills and dividing the total amount by 12 months. For bills requiring payment other than monthly subscription, like auto insurance payment, divide the total amount by 12 to get monthly expenditure.

2. Secondly, establish your likely expenditure in retirement

Write down the expenses you might incur during retirement. Deduct paid off debts. Be as real as possible. You should include fun items like golfing, eating, travel, ballroom dance lessons, and many more. Then, add up these expenses to your monthly bill. Additionally, you need to use projected spending to calculate estimated expenditure during retirement.

In projected spending, multiply your current income with a certain percentage to give you the retirement needs. However, it is not accurate, but it gives you a rough estimate of your needs during retirement.

Moreover, you should also consider the 80 percent rule which states that you should have a plan of replacing 80 percent of your current income in retirement. You can be more conservative by using the 90 percent rule or 70 percent rule if you feel won’t spend as much.

Further, with your retirement money stashed away you can use the four percent rule which states that you can withdraw four percent of your saving yearly without running it dry.

Finally,
3. Evaluate your retirement planning progress – by instituting benchmarks.
4. Once you decide what to do, Create your plan and make changes if necessary.
5. Revisit your plan often, like yearly, by monitoring your finances.