Brad Tinnon

Brad Tinnon

Why You Might Spend More, Not Less, in Retirement

If you were to do a quick Google search on the “cost of retirement”, you wouldn’t have to look very far to find people say that you only need to live off of 70% to 80% of your pre-retirement income. But in today’s blog post I will share 3 major reasons why you should plan to spend more in retirement, not less.

REASON #1: HEALTHCARE COSTS

It’s a pretty well known fact that healthcare costs are rising at a much faster rate than other goods and services. By the time retirement rolls around, projected healthcare costs could easily cost over $50,000 per year for a couple. This could be a reality unless some changes are made to the healthcare system. But even if changes are not made, it’s wise to prepare for the worst case scenario.

REASON #2: SOCIAL SECURITY PROBLEMS

While Social Security is not technically a reason that will cause you to spend more in retirement, it is something that could cause you to take more money out of your investments. Full retirement age for claiming Social Security has gradually increased from age 65 to age 67 since 1983. In addition, the Social Security Trust Fund is expected to be depleted by 2034 at which point retirees will only receive 79% of the amount promised to them. These issues mean that you will likely be tapping into investments sooner rather than later and withdrawing more than you would have otherwise. Like healthcare, this is another program that is in desperate need of overhaul. And if the program is not fixed, and you didn’t properly plan for the worst case scenario, then you could find yourself running out of money.

REASON #3: TIME

The one desire that almost every one of our clients has for retirement is travel. This includes people who are currently retired and those that are many years from retirement. It’s the one thing that you likely didn’t get to do as much of when you were employed because you simply just didn’t have the time. But in retirement, you will have a lot of time on your hands and travel could become a real possibility. Perhaps even extended travel. Many people decide to live in a warmer state during the winter months or a cooler state in the summer months. Or you may just want to travel the countryside year round as a bucket list item. 

Even if travel is not your thing, you will still be faced with how to fill all of your time. You will quickly get bored with sitting around your house all day. I was reminded of this recently when I came down with a bout of the flu. I have rarely ever missed work because of being sick. And even when I was sick, it never really lasted that long or was that serious. But this recent flu bug put me out of commission for an entire week. I barely had enough energy to watch tv. It was one of the slowest and most boring weeks of my entire life. My point is that to avoid this boredom, you will likely be filling your time with things that cost money. Maybe it’s daily lunches with friends, more time on the golf course, house projects, etc. Whatever the case may be, the extra time will likely be expensive.

CONCLUSION

Instead of accepting the idea that retirement will cost less, do yourself a favor and at least consider the possibility that you will spend more in retirement. With the rising cost of healthcare, the uncertainty of social security, and the extra time you have on your hands, it is quite possible that your cost of retirement will be more, not less.

I encourage you to start playing with the numbers today assuming that you will spend more in retirement. See how this will impact whether or not your money will last your entire lifetime. If you need some help with this, then check out my 5-step process that will help you estimate the size of your retirement nest egg. When the retirement line in the sand is drawn, you don’t want to have regrets wishing you would have done more. Start planning today!

I would love to hear your thoughts on how you’re planning for retirement. Will you be planning to spend more or less in retirement? 

If you have any questions about your personal situation, feel free to contact us.

 

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Brad E.S. Tinnon
CERTIFIED FINANCIAL PLANNER™
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