Identify Your Financial Goals
Consider how much money you will need after retirement. Some of your expenses will
diminish or disappear when you stop working, while other expenses may grow
during your retirement years.
The following expenses should decrease:
- Retirement Funding. You will no longer need to deduct retirement savings from your paycheck.
- Payroll Taxes. If you are no longer working, you will no longer incur Social
Security taxes, Medicare taxes, or local payroll taxes.
- Mortgage Payments. If you haven't already paid off your home mortgage, you
may be close to doing so.
- Work-Related Expenses. You can cut work clothes, work lunches, and union or
professional membership dues from your budget. Without a daily commute,
you could reduce your car insurance, maintenance, and other expenses
(especially if you downsize from two cars to one).
- Daily Expenses. You can use senior citizen discounts to trim 5% to 15%
from the cost of restaurant meals, prescription drugs, transportation,
and other items.
You could end up spending more on:
- Medical Costs. Your expenses are likely to increase
for medical and dental care, prescriptions, health insurance, and
long-term care insurance. In addition, Medicare premiums and deductibles
rise almost every year.
- Travel. You will have more time to travel.
- Maintenance and Repairs. You may not be willing or able to do home maintenance
and repair work such as lawn care, painting, and other chores.
- Utilities. If you spend more time at home, your heating and air conditioning costs
will increase. Your phone bills could also grow if you make more calls
to family and friends.
- Family. You could find yourself caring for aging parents whose own financial
resources have dwindled. Alternatively, your children could return to
the nest because of job loss, divorce, or some other setback.
All in all, to live comfortably in retirement you may need an estimated 70% to
80% of the pretax income that you earn in your final working years. Of
course, your situation may differ, and you could require more or less
based upon your retirement plans.
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