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How Much Will Your Expenses Be in Retirement?

by My Journey to Millions

There has been a trend in retirement planning that I don’t particularly understand, the trend is propagated by the main stream financial companies/publications that look for easy answers that are not so easy.  In retirement planning you don’t need 50%, 60%, 70%, 80%, 90% or 100% of your pre-retirement income.  During retirement you need the amount that your budget dictates.

Retirement isn’t a Switch

I am all about optimizing your spending or making yourself more efficient, but for the most part I follow the ramit technique – i.e. $4 lattes don’t matter as much as larger wins.  Notwithstanding as retirement rolls around you are looking at somewhere between 20 and 40 years of spending habits behind you.

All of sudden when you turn 60, 65, 67 or 79 those living expenses don’t really change!  Maybe you’ll pay off your mortgage but in today’s world that has nothing to do with your retirement age (it might have mattered more in the past when the traditional 30 year note was given to 30 year olds).  Besides there is an easy offset to that reduction – paying for medical insurance without your company’s backing?

Cutting back on one’s expenses is usually a good idea, especially after you transition to more of a fixed income, however, automatically assuming you are going to spend 30 or 40% less just doesn’t make sense to me.

What about you?

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Brandy 09/19/2011 - 10:59 am

The only thing I can see reduced in retirement is the amount of money I am saving for retirement. Right now that amount is a paltry 12% of my income but next year should be closer to 40%. Also, I will not have a mortgage payment…so there is some more money I won’t need in retirement, but I believe that my normal budget for clothes, entertainment, dining, groceries, utilities, etc. will stay about the same.

LaTisha 09/19/2011 - 2:43 pm

I completely agree. I actually expect to spend more in retirement. Mostly because I want a mobile retirement where I travel for most of the year.

Jenna 09/19/2011 - 2:46 pm

Yahoo Finance just published an article stating that Generation Y-ers will need at least $2million to retire. Crazy! http://myjourneytomillions.com/articles/how-much-your-expense-retirement/

Shannyn 09/19/2011 - 4:51 pm

Ha! This post made me chuckle because I can relate to the idea of cutting expenses in terms of going back to school. When I went to grad school I had a severe reduction in income, increase in expenses and had a few instances where I was blowing money because I was too busy to cook/buy groceries…so ya, I tried to curb my lifestyle (which wasn’t extravagant but still) and failed several times before I could identify what factors were tripping me up, and what I could cut back on without feeling the pinch.

Thinking you can cut your expenses or downplay your lifestyle (especially if it’s already pretty simple/frugal) AFTER you need to is laughable…it’s just another form of procrastination…kind of like hoping you’ll eventually learn to cut calories when your doctor gives you a stern talking to!

Andy Hough 09/19/2011 - 5:36 pm

I’d like to think that most people aren’t spending 100% of their income because they are saving some of the money for retirement. Once you are retired you won’t be saving for retirement anymore so your expenses should be a lower percentage of your income. As you said it doesn’t make sense to base your income needs on your income – it should be based on your expenses.

Don 09/19/2011 - 7:03 pm

Based on the number of people that over-reached on their houses and have no savings, yeah, to think that we as adults will only need 65 or some other percentage of our current salary is kind of naive!

Personally, I would like to shoot for an amount twice the income number I would have made before retirment, and really 4 times as much. Both number are unlikely, but with the threat of hyper-inflation and the declining value of the dollar, it might be the number to shoot for.

krantcents 09/19/2011 - 8:54 pm

You are right! Spending does not change. In my case, I spend considerably less than I earn. I max out my retirement and live on what is left. I already know that I will be adding to my spending by traveling.

Maggie 09/19/2011 - 10:13 pm

I think you are exactly right. You need to get into habits long before retirement that can continue into retirement. Learn to live below your income and save the rest. When we retired we didn’t have a mortgage any more, but our health care payments have just about made up for it. Our lifestyle has remained pretty much the same. If anything we’ve been able to afford more since we don’t have kids to support anymore!

Freddie 09/20/2011 - 10:39 am

Nice article. Gave you some Retweet love. Once I get my reddit account established, I will be hooking up the yakezie members with more of that as well.

Pam 09/20/2011 - 11:50 am

Cutting back on income scares me. And I’m not, living beyond my means at all. It’s just that if I didn’t have the mortgage I would get creamed in taxes that are off set by the interest of my mortgage. The cost of health insurance alone as you get older is unbelievable. So you have medicare that doesn’t mean that a good Doctor will accept you as a patient. Many won’t accept Medicare patients anymore because of the amount they are paid. The cost of meds alone can take all of your income. I think I’ll just work until I die. That will probably make things easier. Sad but true.

Suba 09/20/2011 - 3:21 pm

I fully expect my expenses to go up when I retire. I have too many plans 🙂 Hopefully the two things that will go down is my mortgage and saving for retirement. But health care will shoot up so I am not sure overall cash flow will be that different for me personally.

Hunter 09/20/2011 - 3:57 pm

If anything I see my expenses increasing in retirement because of all the exciting plans I have. But, after 70-75 I can see my activity rate slowing down, and my expenses too.

IIW 09/22/2011 - 10:24 pm

I don’t know… I am decades away from then, and so much can change between now and then that I have no idea what my expenses will be like. I’m saving money to be prepared, for then and for the nearer term and also working on building up that side income. I’d be happy in knowing I can generate income when I get to that point instead of being forced to live off my savings.


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