You know how important it’s to plan of your retirement, but where do you begin? . Use your current income as a starting point – It is common to discuss desired annual retirement income as a percentage of your current income. Dependant upon who you are talking to, that percentage might be anyplace from 60% to ninety percent, or more.
The attractiveness of this approach lies in its simplicity, and the fact that there is a fairly common sense analysis underlying it: Your current income supports your present lifestyle, so take that income and reducing it by a specific percentage to reflect the fact that there’ll be certain expenses you will no longer be liable for will, theoretically, enable you to sustain your current lifestyle.
The problem with this approach is that it does not account for your specific situation. That is why estimating those expenses is a big piece from the retirement planning puzzle. But you can have a difficult time identifying all your expenses and projecting how much you will be spending in each area, particularly if retirement is still far off.
To assist you to get started, here are some common retirement expenses: Food and clothing – Housing: Rent or mortgage payments, property taxes, home owners insurance, property upkeep and repairs – Utilities: Gas, electric, water, phone, cable television – Transportation: Car payments, car insurance, gas, maintenance and repairs, public transport – Insurance: Medical, dental, life, disability, long term care – healthcare costs not covered by insurance: Deductibles, co payments, prescription drugs – Taxes: state and federal income tax, capital gains tax – Debts: Personal loans, business loans, credit card payments – Education: Childrens or grandchildren’s college expenses – Gifts: Charitable and personal – Savings and investments: Contributions to IRAs, annuities, along with other investment accounts – Recreation: Travel, dining out, hobbies, leisure activities – Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other form of assisted living – Miscellaneous: Personal grooming, pets, club memberships – Do not forget that living costs will go up with time.
The average annual inflation rate over the last 20 years has been approximately 2%.1 And bear in mind that your retirement expenses might change from year to year. For instance, you might pay off your home mortgage or your kid’s education early in retirement. Other expenses, like healthcare and insurance, might increase as you age. To defend against these variables, build a comfortable pillow in your estimates .