Preparing a budget for your retirement? Here are seven areas where you're likely to spend your money.
When you start planning your retirement corpus, you're likely to hear advice, such as, 'start early and increase your savings over time.' These suggestions are good. But what almost everyone overlooks while saving for retirement is the possible retirement expenses to be considered.
And it's not just food bills and medical bills!
Over time, our priorities change. Things that are important to us in our 30s, such as eating out, partying with friends, or going on road trips, will not be the same when we become 60.
Hence, you should also keep that in mind when creating a budget for your retirement.
While there are so many expenses you think you need to factor in for your retirement, these seven expenses need to be factored into your savings plan from now onwards so that you can enjoy a worry-free life once you enter your senior years.
Here are two major types of expenses you should factor in when planning your retirement.
These expenses are fixed and include necessities like food, medicines, doctor check-ups and hospital bills, transportation costs. At least, a portion of these can be covered by your pension scheme.
As you age, healthcare becomes one of your top priorities and a critical expenditure in your retirement planning process. From routine health checks and daily medications to hospitalization, you must plan to have the best medical care possible throughout your golden years.
You must obtain health insurance to guarantee that most of your healthcare bills are covered. Starting early is the best way to get the most comprehensive coverage at the most affordable premiums.
2. Daily Necessities & Utility
In most cases, you start planning your retirement in your late 20s or early 30s. Hence, it is naturally hard for you to eyeball what your food and utility expenses will be 20 or 30 years down the line. While you may assume your pension would be enough to cover those costs, don't forget the inflation.
Hence, you can save by assuming an average inflation rate of 6.25%.
Most people overlook taxes when planning for their retirement life. Although senior citizens get tax benefits, you would still have to file your income tax on your pension and any consulting income. You'd still have to pay property tax.
If you want to move to a small town or lead a village life after retirement, research where you'd like to settle beforehand and what the property tax is. It varies from state to state. You can save your money accordingly.
Discretionary expenses include any lifestyle choices you make after your retirement. It is when you can fulfill your lifelong wishes, which took a backseat due to the pressure of the job and other familial responsibilities like traveling or taking up hobbies.
Your constant revenue stream, like pension, may not cover your necessities and discretionary spending. Therefore, plan to pay for these expenses with additional income so your budget wouldn't take a toll.
1. Don’t Forget to Think of Travel Expense
Your retirement life is the best time to see the world. You can travel as your heart desires now that you are free from work and familial obligations. By now, your kids also might have started earning.
As a retiree, you have the added advantage of being able to travel during the weekdays and off seasons, which would save money and help you avoid crowds. To pay for these travels, you should have a separate travel fund.
2. Take Relocation into Consideration
Moving cities and buying a home is a major expense. After spending 2/3rd of life in big cities for a job, many people prefer to move back to small towns to live after retirement. If this is your plan, you should be prepared for it in advance.
Perhaps buy the land when the price is low and construct the home later. This way, you could avoid a price hike due to inflation.
3. Splurging on Your Grandchildren
Which grandparent doesn't like to spoil their grandchildren? As a grandparent, you may want to lavish them with presents, travel to see them regularly, assist your kids with child care, or establish a trust to help pay for their future.
Each of these circumstances has the potential to alter your retirement budget drastically. Hence, grandchildren can shift your financial priorities.
4. Leaving Money for Your Future Generation
Some retirees like to leave financial gifts, property, or treasured items such as jewelry or other heirlooms to their children, grandchildren, or other heirs. Make sure your wishes are mentioned in your will, so your heirs have no dispute.
To sum up
Your retired life is an art of carefully spending your saved money. You can spend it all too soon to live lavishly or become too frugal to live a comfortable life. Aside from the expenditures outlined above, numerous unanticipated costs may arise along the way.
Hence, you should take advice from a financial planner and create a separate financial portfolio for your elderly years to ensure a pleasant and stress-free retirement.