Retirement Expenses

July 1, 2023 | David Lawrence, CFP®, AIF®

With summertime officially here, many of us are fresh off planning for summer vacations. Typically, planning for a trip we’ve never been on means a lot of estimating the expenses we will incur. This is not easy to do given how expensive things are nowadays. 

Planning for retirement expenses can be very similar. For example, it’s a “trip” you haven’t done yet, so there will have to be estimating involved. If you have talked with friends or family that are retired and “on the trip already,” you might have a pretty good estimate of what you want your “retirement itinerary” to look like. Having said that, there will be other factors to consider - let’s look at a few together. 

First, we at Kemp Harvest assist our clients in planning for their retirement expenses by starting with a tried-and-true method of replacing their take-home paycheck. This take-home paycheck is the amount of money direct deposited into their bank account after withholding and taxes from their job (s). While they are not retired yet, their current living expenses (most notably their monthly bills, loan payments, and some lifestyle expenses like travel) are paid for out of those same take-home paychecks. This helps provide confidence as we transition into retirement that, while our working paycheck stops, our “retirement paycheck” starts to replace it. 

Another factor to take into consideration is that certain expenses will be permanent (e.g. gas, groceries, utilities, etc.), while others are only temporary. Most notably, we see this with loan payments. For example, when a mortgage is paid off or we’re done helping our child with college-related costs. 

In addition to this, it's important to add healthcare related expenses as they are playing an increasing role in retirement related expenses. Considerations such as your retirement age, eligibility for Medicare, Medicare supplemental plans, current health related treatments are all important to add to your total retirement expenses. 

Second, there will be a need to evaluate the expenses that are on our “wish list” to determine what additional expenses you can afford without running out of money. It’s helpful to start off by asking a few additional questions: 

      - How much travel would you like to do?

      - Do you have any major plans to move to a different part of the country where cost of living is higher?

      - What plans, if any, do you have to make major home renovations – or to buy a vacation home?

      - What new hobbies will you now have – or spend more time on existing ones – and subsequently have additional expenses? 

What often coincides with some of these questions is the consideration of difficult, but important expenses that you never had before. For example, how will you want to pay for long term care – assuming you need that later in life? Will there be a desire to prepay funeral expenses? 

Third and final, is to account for inflation. Specifically, the things we spend money on in the first few years of retirement will become more expensive as we progress through retirement. Think of groceries, gas, cars, home renovations – they will only increase in cost over the next 30 years. 

A financial planner will help you create a plan for your retirement “trip” and estimate the total costs. It’s important to note that any financial plan should include another very key principle – the need to adapt and change. Often, what we think will happen in the future doesn’t pan out the way we expected. Having a planner with experience to navigate all the changes we will go through is vital to adapting the best way possible. 

If you’re not working with a financial planner, or you’re attempting to create a plan on your own and your considering partnering with a planner, please contact us!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.