A comfortable retirement doesn’t just mean cutting back on how much money you have saved. Your lifestyle plays a big role.
A $1 million nest egg is enough for some people, while others aim to save closer to $5 million. Living a comfortable retirement comes down to your ability to reliably pay monthly bills through Social Security, portfolio withdrawals and other sources of income. Considering these monthly expenses can help.
Debts you can’t skip: housing and health care
Mapping out how much you need for a comfortable retirement starts with your biggest, most pressing debts. Home ownership still has costs even after you pay the mortgage, including property taxes, homeowners insurance, utilities and home owner association (HOA) fees. You should also be prepared for the cost of repairs and maintenance.
Writing down all your housing expenses can help you figure out how much money you need. It may also encourage you to look for alternatives to your current lifestyle, such as downsizing, moving or selling your home and renting. Reducing your expenses makes it easier to live a comfortable retirement, especially if you focus on housing costs.
No matter where you live, health care costs will also add up. While Medicare offers some coverage, you will have to consider premiums, prescriptions, dental, vision and other expenses. A Fidelity report estimates that a 65-year-old who retired last year could end up spending $172,500 on health care and medical expenses in retirement.
Daily expenses: food and transportation
The next two bills deal with daily expenses. All food-related purchases, including grocery, restaurant and delivery, are counted as one category. Your habits – such as when you cook or eat out – and location influence how much you spend on food.
Transportation is another important expense that includes car payments, insurance, gas, maintenance, horseback riding, public transportation, and other modes of transportation. You may need one car instead of two if you and your spouse are both retired.
Liabilities, taxes and insurance obligations
Debts, taxes, and insurance obligations can take up a large portion of your budget. Incorporating this into your financial plans can prevent unexpected surprises and ensure a comfortable retirement instead of a rough awakening.
Any credit card debt, loans, mortgages and other debts will compete with basic living expenses. It’s best to pay off this debt as quickly as possible – even if that means taking on a part-time job or cutting back on spending significantly. While Social Security can help, don’t forget that it is taxable. Pensions and withdrawals from traditional retirement plans are also taxable.
Long-term care is an often-forgotten expense, especially before retirement. But it could be a big deal down the road. Getting a long-term insurance policy can reduce your costs if you end up needing long-term care, but you’ll have premiums that come out of your budget every month.
