Episode 35: How Much Will I Spend in Retirement?

Published: February 11, 2021 | Updated on: February 11, 2021

Thank you for joining us for Episode 35 of our Money Wisdom Question Series, where we answer common financial and retirement investment questions. Today’s question is, “How much will I spend in retirement?”

“How much will I spend in retirement” is a great question that we get a lot. I think there is a false assumption that people make from what’s sort of out there in the press and some of the financial magazines. The assumption is that you’re going to spend 80% of what you spend while you’re working in retirement. So, if I’m working and I’m spending $10,000 a month, the theory is that I will spend $8,000 a month or 80% of the $10,000 a month in retirement. I would push back on that a little bit.

What we have found as we walk through with clients, is that it can be all over the map from about five years before retirement and well into retirement. Some people spend a lot less as soon as they retire than they were when they were working, maybe only 60% of what they were spending when they were working. On the other hand, some people go on a fun spree. They start to travel the world, go see their grandkids, maybe even do some gifting to kids and grandkids. There are a few years where a lot of people, once they retire, could spend 120-130% of what they were spending when they were working.

Create a Retirement Income Baseline

It’s really important to figure out what you’re taking home now and what you’re spending every month. This doesn’t have to be down to the last penny, but it should be a pretty good general guideline of what you’re spending right now. You might take what you’re taking home and figure out, “Hey, do I have anything left over at the end of the month?” If not, if it’s just right, then that’s the amount you need as a baseline. Then you might want to add some extra money that you would spend, at least in the first few years of your retirement when you can travel and do extra things.

What I always tell people and this is the most important thing, is to use the first year of retirement as just a test. Make sure you have flexibility after the first year to increase or decrease your income because there are going to be things that you and even your financial advisor don’t think of ahead of time. A lot of those things aren’t necessarily going to be the financial advisor not thinking of it. Instead, they’re going to be things that you decide to do that you hadn’t done before.

Again, use the first year as a baseline. Adjust after the first year of retirement and look at what you’re taking in and spending right now and use that as the first year or the first month of income as your retirement income.

Thanks for joining me and I hope you found this information helpful!

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