What’s the “Magic Number”?
Often people have an idea there is a “magic number” they need to save for retirement to be a reality. While savings goals are great, the ability to retire is much more closely tied to a different number: Monthly Expenses!
As clients approach retirement, discussions about cash flow become more prevalent and important. It’s not uncommon for people to think they will spend significantly less in retirement. However, an increase in expected monthly expenses by even $100-300/mo can have a significant impact on how long your “magic number” will last.
If you find yourself approaching that finish line, make sure you’ve started thinking about your spending. Consider the following common retirement expenses:
- Travel: How much and what type of travel do you hope to do? Primarily domestic or international, first class or economy, visiting family or 5-star hotels?
- Housing: Planning to relocate closer to family? Ready to downsize to a one-level you can age in? Looking to add a second home somewhere warm for the winter?
- Medical Expenses: What type of premiums will you be paying both before and after Medicare? Do you have any conditions that are likely to progress and require care? Do you have Long Term Care insurance to help protect your assets should you need care?
- Vehicles: Planning to buy that new retirement vehicle? Looking to upgrade to get all the new safety features?
- Hobbies: Now that you will have more time on your hands, what types of hobbies will you begin to enjoy and how expensive are they?
Starting to think about what retirement looks like for you is critical to knowing whether the “magic number” you’ve worked for can provide the lifestyle you want in retirement. It’s possible either the number will change, or your expectations of spending may need to be adjusted. Curious about how much monthly income your portfolio can provide? Schedule some time with your planner to begin designing your retirement income.
Written By Patricia Spies, CFP®