What Lifestyle Do You Want for Retirement?

The first step in figuring out how much money you will need during retirement is to think about what you will do during this life stage. For some people, retirement is a time to do all of the things they were unable to do while working. For others, it is a time for leisure and rest. For most, it is somewhere in between. What does retirement mean to you?

Imagine your retirement lifestyle. This is when ideas about how you plan to live during retirement are clarified into specific amounts of money needed for living expenses, recreation, healthcare, etc. Define your goals and then create a plan to help achieve those goals.

Take your time and really think through the types of activities you would enjoy the most. Have fun creating Your Retirement Wish List.  When you do, you will have taken the first step to achieving retirement bliss!

How Much Income Will You Need to Support That Lifestyle?

Retirement planning is simply a balance between your financial resources and your lifestyle. For example, purchasing that larger home with the bigger monthly mortgage payment may mean that a lot less will be set aside for retirement. Maintaining this balance is one of the secrets to successful financial planning.

Do you need a household budget? Go to the Budgeting Worksheet and create a budget now.

How Can Basic Living Expenses Affect Your Retirement Income?

Now turn your attention to the basic living expenses in retirement. First, look at the basic expenses that generally decrease in retirement, then those that increase.

By adding the cost of your preferred retirement lifestyle to your expectations of basic living expenses, you can determine your retirement income goal in today's dollars. You are on your way!

The basic living expenses that generally decrease in retirement include:

Mortgage Payments. Most retirees own a home by their retirement. Ideally, this home would be paid off or nearly paid off at retirement.

Clothing. Bermuda shorts and t-shirts cost less than business suits or other work clothes!

Taxes. With careful financial management, most retirees will pay fewer taxes during their retirement. Generally, this is because earned income is less. Attention must be given to meet guidelines on tax-qualified plan distributions.

Debt Repayment. Hopefully, you will be debt free!

Transportation. Most retirees drive less (no more commute!) and many are able to get by with one vehicle for the household.

Disability Income Insurance. Not necessary for someone retired.

Savings and Investments. You are now in the "keep it" stage as opposed to the "accumulation" stage.

The basic living expenses that generally increase in retirement include:

Rent. For retirees who have not purchased a home, they should factor in the increase of rental costs during retirement years. If not planned for, this could cramp your lifestyle!

Home Maintenance. If you live in a home that you have owned for many years, it is likely that maintenance costs will increase throughout your retirement.

Utilities. Utility costs can increase periodically with energy demands based on oil shortages or weather conditions.

Insurance. As the cost of autos and homes continues to increase, so does the cost of insurance.

Long-Term Care. This applies if you do not already have long-term care insurance.

Vacation/Recreation. This is one expense we want to increase!

Contributions and Gifts. Retirees tend to contribute more to charitable organizations and often make monetary gifts to children and heirs.

Health Insurance. This is a main area of concern for retirees, many of whom may rely on Medicare. The cost of prescriptions, preventive care and major medical coverage increases each year faster than the general rate of inflation.