Do you sit in a cubicle dreaming of retirement? Are there a host of hobbies just waiting for you to hit that sweet 65 mark? If so, you’re not alone. Most people hope to retire from working at some point to travel, spend more time with family and friends, or even just relax.
Whatever your retirement plans look like, you’ll need a strong financial foundation to make sure you save up enough money to support everything you want to do.
But how long is retirement, and what costs will you need to cover when you get there?
How Long is Retirement, Anyway?
One of the trickiest parts of retirement planning is figuring out how long retirement will last. It’s easy to save money when you know how much you’ll need, but retirement could last anywhere from 1 to 30 years (or even beyond that!).
Although you probably can’t pinpoint when your last moment on Earth will occur, you can look at the stats and make a conservative estimate. For example, the average life expectancy for an American is about 76 and a half years, but it’s not uncommon for someone to live well into their 90s. Also, the average life expectancy has increased by about two years every decade for the last hundred or so years, so by the time you retire, the average retirement will be longer than it’s ever been.
Another thing to consider is your family history. If your family has historically trended toward the longer or shorter end of the life expectancy spectrum, that should be taken into account.
A great rule of thumb many advisors recommend to those who retire around 65 years old is to plan for a 30-year retirement. In the event you pass away early and don’t spend it all, you’ll have a nice little nest egg to leave for your loved ones. And if you do make it well into your golden years, you’ll be glad you prepared financially for the long haul.
What Costs Should Your Retirement Plan Account For?
When you’re trying to figure out how much money you’ll need for retirement, you need to do a full, thorough accounting of which expenses you’ll have to cover. Let’s break down the basics.
Housing and Bills
This will likely be one of (if not the) biggest expense you can expect down the road. Rent costs big bucks, and it usually increases by about 3% each year. Depending on how close you are to retirement, the cost of your future rent could seem unfathomably high right now.
However, if you’re well on your way to a paid-off mortgage (or have already paid off your mortgage), you’re in good shape to keep housing costs low. Just don’t forget to account for expenses like home insurance, regular maintenance and property taxes.
Senior discounts are going to be an amazing perk of retired living, but they won’t cover all your food needs. Are you planning to spend your later years trying out all those fun recipes you’ve collected over the years, or are you just as happy with a PB and J?
Maybe you’re planning on dining out more often than not – that’s great, too. Just make sure to leave extra room in your retirement plan for those expenses.
Entertainment, Travel and Other Fun Stuff
Nothing throws off a budget like a brand new grandkid – how can you not spoil them?
But there are other fun things you can spend your money on in retirement, too. Think about all the places you’ve wanted to travel, all the fun activities you never got to try (was that goat yoga as fun as it looked?). While the idea of sitting at home on your couch might sound appealing now, it can grow old pretty quickly. One study found that retirees were 40% more likely to be diagnosed with clinical depression than those who were still working.
Make sure to save a substantial amount for your own entertainment: the hobbies you love, the places you need to see, or even just spare change for those matinees at the local theater.
Healthcare and Insurance
A recent Fidelity study estimated that a 65-year-old retired couple in 2021 would need about $315,000 saved to cover their healthcare costs throughout retirement.
The average single 65-year-old man would need an estimated $150,000, while a woman of the same age should expect to spend about $165,000 on their healthcare costs post-retirement. In all likelihood, those numbers will only continue to rise.
When you’re young and healthy, it’s easy to overlook healthcare as a big expense down the road – but the numbers don’t lie: you’re going to need it. From healthcare premiums to medications or even that super-bejeweled cane, you need to plan for whatever health concerns might arise in retirement.
Now for the fun part: taxes.
Even if you’re not working, chances are you’ll probably still be paying income tax somewhere. Sure, it felt good investing those pretax dollars in your 401(k), but Uncle Sam has been patiently biding his time waiting to take his cut. That’s part of what makes a Roth Conversion such a popular option to consider – you can get the taxes out of the way before you retire when it might make more sense.
A financial planner can help you estimate and plan the costs of taxes for your retirement, helping to ensure you have enough money for all your other expenses.
Emergency funds are always important, even when you’re older – and maybe especially when you’re older.
From fires to falls down the stairs, emergencies can spring up any time or place. If you have spare money in your account to cover these emergencies, you won’t be left hanging during tough times. A great rule of thumb for emergency funds is to save at least six months worth of living costs. However, your advisor can help narrow down a more specific number that aligns with your lifestyle and goals.
A well-rounded retirement plan covers more than just survival. You need to save enough to fund your home, health and even entertainment for what could be several decades. When creating your retirement game plan, don’t forget to include these six common costs.
Retire with Confidence Using Lasso
Saving for retirement can feel overwhelming, but the sooner you start planning for your golden years, the better. Click here to download Lasso today and start saving toward your retirement goals.