Humankind has never quite figured out how to adequately predict the future. Sure, technology and insight have advanced to the point that society can forecast weather days for the upcoming week and estimate how stock markets will perform in the coming months, but there is no certainty in any of these estimations. Likewise, all people face the unknown of predicting how their expenses will play out in retirement. Do you think your expenses will stay the same, go up, or go down? Don't have an answer? There's no need to worry because you are not alone.
If Americans could predict expenses in retirement, there would likely be more people enjoying a comfortable retirement. A major part of planning for your future retirement is predicting your expenses. You do not have to know the outcome in order to take the right steps to try and keep your expenses level and predictable during your golden years. Here are a few steps to follow.
Focus on Living Costs
Your cost of living is going to be the most likely source of sneaky increases in expenses during your retirement. You are already accustomed to paying for items like groceries, clothing, utilities, and other necessities around the house. However, while the cost of these items might seem stable now while you are pulling in a steady income, inflation can push the cost of these items higher over time. If your income is not rising, or if retirement is steady as part of a retirement plan withdrawal, the cost of these expenses can sneak up on you. Plan now and track your expenses in this area so you know what to expect.
On the plus side, other costs can go down that might serve to offset these rising expenses. Forbes points out that housing accounts for almost half the expenses (46.89%) that individuals face during retirement. Fortunately, you may be able to lessen its impact by considering different housing options, such as:
- Assisted or Independent Living
- Paying off a home and/or renting it out
- Downsizing to an apartment or condo
These moves are not guaranteed to maintain steadier expenses, but they are still worthy of consideration, should the need arise. Additionally, many couples will downsize to one vehicle or get rid of their cars altogether as a means of lowering expenses.
One final expense that many do not predict is leisure spending. With no job to go to every day, many find themselves traveling more, going out more frequently for dining and entertainment, or participating in more activities. Plan carefully for these events because they can increase your expenses.
Fund Your Future
If you want to maintain steady expenses during retirement and try to keep them as close to your lifestyle now, it is time to think about funding your future. The Balance notes that everyone can prepare financially for the expenses of retirement by making an investment plan now. It is important to meticulously and rigorously plan for your future because many retirees spend more on living costs and leisure in the first two years of retirement than any other period in retirement.
As such, prepare yourself in advance and remember that Social Security will not help cover all those expenses. Invest when you are young, to take advantage of compound interest and max out 401(k) contributions each year, especially if you have an employer match. With more help with investments and coming up with the right retirement plan for you, call a financial advisor at Manhattan Ridge.
The views expressed are not necessarily the opinion of Social Advisors, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.