4 Most Important Things to Consider When Estimating Retirement Expenses

Jessica Cannella: In retirement, peace of mind comes from knowing that you have income to cover, not only your need-to-live expenses but your live-your-life expenses too. Retirement today can span 20, 30, 40 years and beyond and life is going to happen along the way. Understanding your income needs is crucial to living your best retirement. I’m Jessica Cannella, president and co-founder of Oak Harvest Financial Group. Today, I’m going to help you outline what expenses you ought to consider if you’re having a conversation about planning for income with your financial advisor.

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For ease of understanding, I like to begin by breaking down the expenses into four different categories.

Need-To-Live Expenses

We’re going to focus on the first category right now, which is your need-to-live expenses. I want you to think about routine-fixed expenses that you know you’ll continue to pay in the foreseeable future, things that you need to live. Let’s run through a quick list here to get you thinking.

Utilities. You need to be able to keep the lights on in your house, your house, or the roof over your head, whether that’s a mortgage payment or your rent. The way that you get to work, think auto loan. If you finance your vehicle or the gas that gets the car to move. Your property taxes, I would bump in here. There’s two things that must happen. We have all heard it. We’re going to die and we’re going to pay taxes.

I would say that if you own your home, property taxes are a need-to-live expense. You don’t want the IRS knocking at your door. Also, loans in general. Any type of personal loan, financial loan, construction loan. Loans cost interest. It’s important that you are making a plan to pay those off. I’d also add the food that you eat, your groceries. You need to eat to live. On this list, I would go ahead in this time and place and add cell phone bill on there as well.

In this day and age, our cell phone is a need-to-live necessity that we pay for. Next on the list, I want you to think of live-your-life expenses. We just covered need-to-live expenses.

Live-Your-Life Expenses

Now, we’re going to talk more about the type of expenses that are consistent with your lifestyle, the extras that make life enjoyable and more comfortable. Here are a couple of examples of lifestyle expenses under the live-your-life category.

Personal maintenance, things like haircuts, maybe nail appointments. Also, entertainment or special experiences, home maintenance like your lawn care or your pool care, and your vacation budget. Subscriptions and memberships that you have like your gym membership or your Netflix subscriptions. The little things that make life more enjoyable. Maybe for you, it’s dinners out with your family and friends or your significant other a couple of times a month or extra holiday spending and gifting.

Whatever it is, the little extras that make life enjoyable would go under the category of live-your-life expenses. When we go from working to retiring, we don’t want our lifestyle to change necessarily. In fact, in our go-go years, the first 10 or 15 years post-retirement, we might want to live life to a fuller extent and really enjoy the fruits of our labor. My team and I, we tend to focus on need-to-live expenses and live-your-life expenses when we’re talking about what is the target goal for an income stream based off of investment tools strategies and financial planning with regard to your portfolio.

Live-Your-Best-Life Expenses

Next, we’re going to talk about live-your-best-life expenses. We don’t need these expenses right away for our planning, but if you know that you’ll be splurging in the near future, you’ll want to share these with your advisor. Here’s a couple of example of what live-your-best-life expenses entail. Bucket list travel. Maybe for you, it’s a dream home, or maybe you’re downsizing, but you want to put a little bit of extra money into making it just the house that you really want because it’s going to be the last house that you live in.

These are the fun expenses that it’s important to share with your advisor, but you’re not always going to be taking a bucket list travel trip. We don’t want to lump those in from a planning perspective with our need-to-live and live-your-life expenses because these are a little out of the ordinary.

When-Life-Happens Expenses

Next, we have when-life-happens expenses. Now, no one has a crystal ball, but when you’re talking about a lifespan of 20, 30, 40 years in retirement, it’s safe to say that life is going to happen.

Sometimes that looks like we get to spend money on living our best life. In this case, it looks like you might need a new roof. Maybe a pipe burst in your house and you have an expensive home repair. Maybe you have to come out of pocket to care for a loved one. These are when-life-happens expenses. This is the most critical time to have a team of professionals to turn to so that you can put yourself in the best possible position to understand where is the most practical place, tax-efficient place to take income from outside of your planned income needs.

Please click the link in the description box because I have for you the spreadsheet that we use with our clients to help you dig a little bit deeper and it’s categorized just as I’ve laid out this video. It categorizes our need-to-live expenses, our live-our-life expenses, our live-our-best-life expenses, and our when-life-happens expenses. This will get the ball rolling for you and your spouse as you have that conversation with a qualified advisor. Thank you so much for tuning in and look forward to seeing you back soon.

Do you need a Retirement Success Plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at (877) 404-0177 or fill out this form for a free consultation: https://click2retire.com/retirement-expenses