Have you ever read or heard that on average you’re going to need 70% of your working income in retirement.
Be careful when mixing averages and real life. If I put one foot in a bucket of ice and the other foot on a hot stove, on average, I’m comfortable. But in real life…
There are four things you need for a financially and emotionally (yes the two are linked) healthy retirement:
1. Contentment. A boat-load of money is wasted by people who are not content, but have the idea that spending money they don’t have (and often paying for it with a credit card) is a good way to find inner peace. Let me save you the trouble…it isn’t.
Contentment results when you cultivate a sense of gratitude about who you are, where you live, who your friends are and what you do to make a contribution to the world. If you are significantly and chronically dissatisfied with any of those four things, you’ll tend to spend lots of money trying to fill that emptiness.
2. Baseline budget. If you’re content in your own skin, it’s safe to make a baseline budget. I’m not a fan of those 60%, or 70% or any other percent rules of thumb. The big question is: will your expenses go up or down in retirement? Of course, the answer is yes…some expenses will go up, while others will go down.
Your baseline retirement budget should be similar to your spending patterns while you are working, hopefully minus a few things: payroll taxes, mortgage payments and car payments. Yes, do your best to enter retirement debt free. Better to work a few more years and get everything paid off.
3. Expected big stuff. You don’t get a new car, buy a new washer and dryer or replace the roof ever year. But every year you will likely incur expenses too large to be covered by that monthly retirement income check. This is where too many retirees are falling back into the arms of debt, and living to regret it. So plan now for large expenses by saving money in retirement – yep, even after you retire, you still need to save money.
4. Unexpected bad stuff. Since we don’t like to think about this, it’s easy to put it out of mind. But bad stuff happens – you can get sick, get sued, get in an auto accident, a tornado could come through town…and on and on we could go.
My point is that you need a combination of safety nets and liquid funds to see yourself through. By safety nets I mean insurance, which calls for collaboration with a licensed experienced agent.
Next week we’ll look at the different spending phases you can expect during your retirement years.