You're approaching the five-year mark before you retire, and there’s a lot to consider for your future lifestyle. It can be overwhelming. However, you can narrow down your preparation by answering three main questions centered on your income and future expenses. Read more to find out how you can start planning.
Big Question 1: What is Your Current Cost of Living?
To know how much money you’ll need after you retire, we must first consider your cost of living today. Do you have a monthly budget that includes necessary expenses like housing, health care, groceries, and utilities? What extracurricular activities do you enjoy and extra costs do you incur? These could include travel, hobbies, technology consumption, home maintenance, and even gift-giving.
Once you look at your monthly expenses, you’ll get a good idea of what typical costs come up each year. It is also important to note that your pre-retirement lifestyle will include different work and home expenses than your post-retirement self. Items such as gas, car wear and tear, are likely to decline if you are no longer driving to work. However, entertainment (club dues, eating out) and travel expenses (vacations, visiting family) could increase.
Big Question 2: What Assets & What Retirement Income Will You Have?
In order to create a retirement plan, start with what assets you currently have. To find out if you have enough to fund your desired lifestyle, you’ll want to perform what is called a retirement-needs analysis for a holistic understanding. Total your assets and retirement income. This may include but is not limited to the following:
- Social Security retirement income projections
- 401k plan
- IRA account
- Pension account(s)
- Real Estate
- Business Value
Our Team can assist in calculating your assets and retirement income.
Big Question 3: What Additional Funds Will You Need?
How much will you need to save for retirement? That entirely depends on what lifestyle you will want to continue or adopt.
If you’re drastically changing lifestyle -- moving to a new location, making large purchases (second home, boat, RV), or beginning a new hobby -- you may need to account for additional funds.
Once you know how much money you have saved for retirement, you can compare your expected retirement expenses each month/year to that of your financial savings. Once you have a total number, you should consider some of the following:
- How many years will your retirement savings last you?
- Are you planning on continuing to work, even part time, during your pre-retirement?
- What is your life-expectancy, based on previous generations?
- Are you considering long-term care in home or in a facility?
- Do you have long-term care insurance?
- Will there be a future inheritance?
The answer to these questions will give you clarity on how long your retirement savings will last. It will also tell you if you are on target with your pre-retirement planning.
Lindsey A. Cannata, financial advisor at J.P. Cannata & Associates stresses “It’s extremely important to review your current spending and to plan for future expenses in retirement. This can seem daunting, enlisting the help of our team can provide great confidence.”
Bonus Question: Do You Know Your Post-Retirement Tax Bracket?
Your income now could push you into a different tax bracket after you retire. You want to make sure you are planning in advance to leverage your position and lower the amount of taxes you’ll be paying after you retire.
Our team at J.P. Cannata & Associates understands how your pre-retirement lifestyle can affect the future, including taxes. If you are in the pre-retirement phase, reach out to us to discuss your tax situation so you can keep more of your money for after retirement. With some planning and a retirement-needs analysis, you can have confidence in your pre-retirement years.