The media tends to give false idealizations of life in retirement. Several media outlets project that pre-retirees will spend less money once they reach retirement, but in reality, most people spend more. If someone is spending less it’s likely because they didn’t do the proper planning to meet their goals and their money falls short forcing them to decrease their spending.
Retirement can be expensive. Every day is a Saturday. People have more time on their hands which leads to a higher cost of living. With more free time, people like to travel and see places they never had a chance to when they were working full-time. Then there’s grandchildren…grandparents love to spoil their grandchildren. That’s not even mentioning health care. If you’re not factoring in healthcare in your retirement savings plan, you’re going to be shocked at how fast it can deplete your assets.
According to Fidelity Investments, the average 65-year-old couple will spend about $400,000 out-of-pocket throughout retirement until age 92, not including long-term-care costs, rising insurance premiums and the reality that people are living longer while their bodies are weakening and their need for medical attention grows exponentially. The view of retirement needs to evolve with how the world is evolving.
As life expectancy lengthens, people should also reevaluate their Social Security benefit options. There are hundreds of different combinations to claim Social Security. Most people claim their benefit too early missing out on hundreds of thousands of dollars. If you delay Social Security, in most cases you will receive an 8% increase in benefit per year from age 62 – 70. It’s ideal to delay your benefit as long as you can.
As you approach retirement, it becomes more and more important to budget your spending and get an accurate measure of your cost of living on a year-to-year basis. People always underestimate their spending which leads to unfortunate surprises during retirement. To avoid these shocking moments, I recommend giving yourself a little taste of reality before you completely finish working by doing an exercise to prepare yourself for the true cost of retirement.
If possible, practice retirement for a month or two before you actually retire. If you believe you can reduce your spending or lifestyle, try to spend what you think you will spend in retirement. Most people find that they run out of money before they run out of days in the month. This is why it’s crucial to do the proper cash flow planning accounting for various scenarios of your life in retirement. This will eliminate many financial mishaps paving way for you to live the retirement of your dreams.