As you approach retirement, it’s natural to wonder whether your savings will carry you through the years ahead. As we discussed in our recent blog, “Income Planning In Retirement,” many factors influence the amount you’ll need. Planning can seem daunting. But breaking it down into key considerations—like understanding your expenses, planning for healthcare, and accounting for inflation—can bring clarity and help you feel confident about your future. Here’s what to keep in mind as you consider how much you’ll need in retirement and how you can make your savings last.
Defining Your Needs
Defining your “needs” for retirement isn’t just about covering basic expenses—it’s about understanding what will give you a sense of security, comfort, and fulfillment as you move into this new stage of life. The specific needs that drive your retirement spending plan include basic living costs, health and wellness expenses, and personal goals. By identifying what’s necessary, you can establish a more precise savings target and create a financial strategy that supports your must-haves and retirement wants. Here are some key areas to consider when assessing your needs:
Basic Living Expenses
Even if you’re no longer working, you’ll still have daily and monthly living costs such as housing, utilities, food, and transportation. These expenses may look similar to what you currently pay, but retirement brings some unique factors into play. For instance, if you’ve paid off your mortgage, housing costs may be lower, but if you’re renting or maintaining a second home, your housing budget will need to reflect those costs. Transportation expenses may decrease without a work commute, but they could increase if you plan to travel frequently. A thorough look at your baseline living expenses will help you establish a foundational budget.
Health and Wellness Needs
Healthcare needs typically increase as we age, and healthcare is one of the biggest costs for retirees. As we discussed in detail in our blog, “Managing Healthcare Costs in Retirement,” Medicare provides a baseline, but it doesn’t cover everything, such as dental, vision, and hearing care. Planning for health-related costs in retirement is essential, particularly if you have pre-existing conditions or a family history that could lead to increased medical needs. Additionally, wellness needs extend beyond just healthcare. If you prioritize fitness, mental well-being, or stress reduction, your budget might include expenses like gym memberships, personal trainers, or wellness programs.
Emergency and Unexpected Needs
Life doesn’t stop throwing surprises your way just because you’re retired. Many retirees find that setting aside a portion of their savings for unexpected expenses—such as home repairs, car replacements, or even family emergencies—provides peace of mind. A sufficient emergency fund ensures that unplanned costs don’t deplete your earmarked funds for day-to-day living or long-term income.
Long-Term Care Needs
Long-term care is an often-overlooked expense that can significantly impact your savings requirements. Medicare doesn’t cover most long-term care expenses, which means the cost will likely come directly from your savings or long-term care insurance if you have it. To address this need, many retirees allocate a portion of their retirement savings toward potential long-term care costs through dedicated savings, insurance, or investments intended to cover these expenses.
Considering Lifestyle Preferences
Your lifestyle and the choices you make leading up to and during retirement play a significant role in determining how much you’ll need in savings to enjoy the retirement you envision. Many people think of retirement as simply an extension of their current lives without work, but it’s important to remember that retirement often brings changes in spending patterns, priorities, and living arrangements. Here are a few specific ways that lifestyle decisions influence your savings requirements:
Housing Choices
Where you decide to live in retirement is one of the most important—and often costly—lifestyle factors. If you plan to remain in your current home, it’s wise to consider ongoing costs like property taxes, maintenance, and possible renovations to make the space more retirement-friendly. On the other hand, if you’re thinking about downsizing or moving to a new area, these changes come with their own set of costs, including relocation expenses, real estate fees, and potentially even higher living costs if you relocate to a more expensive area or community with additional amenities.
Travel and Leisure Plans
The desire to travel is common among retirees, who finally have the time to explore new destinations, visit family, or pursue hobbies they couldn’t do during their working years. However, travel can be a significant budget item. Whether it’s annual family vacations, long-stay visits with relatives, or international trips, each of these plans adds to the financial demands on your retirement savings. Even less costly leisure pursuits—like frequent dining out, theater outings, or joining a club—need to be factored into your budget.
Family Commitments
Family is often a major influence on retirement plans. You may want to provide financial support to children or grandchildren, plan to help with college funds, or start a small family business. Some retirees enjoy taking care of grandchildren, which can bring additional expenses for travel, supplies, and even housing adjustments if they choose to live close to family. Additionally, some retirees financially help aging parents or siblings, which can create an unanticipated strain on their budget.
Giving Back and Philanthropy
Many retirees also enjoy giving back through regular donations to causes they care about or volunteering their time and resources. While volunteering is often free, it can still incur travel or other associated costs. Similarly, if you’re interested in charitable giving as part of your retirement legacy, setting aside a portion of your budget can help ensure that your philanthropic goals align with your long-term financial health.
Using a Bucket Strategy to Help Your Savings Last
Inflation is an invisible force that gradually erodes purchasing power. A dollar today won’t be worth as much in the future, which is why it’s important to plan with inflation in mind.
One approach many retirees find helpful in planning for retirement savings is “Understanding The Bucket Strategy,” described in detail in our recent blog. This strategy divides your assets into three “buckets,” each earmarked for different phases of retirement:
- Short-term bucket: Funds for the next few years, kept in cash or near-cash investments for stability and liquidity.
- Intermediate bucket: Funds to cover the middle years of retirement, usually invested in a way that balances growth and income (think bonds or balanced funds).
- Long-term bucket: Assets meant for later in retirement, typically invested in stocks or other growth-oriented investments to keep up with inflation.
This layered approach can provide peace of mind. It allows you to spend from the short-term bucket and gradually refill it over time, ensuring that your money grows even as you draw from it.
Balancing the Retirement You Envision and Savings
As you envision the retirement lifestyle you want, keeping a balanced view of your budget and income needs is essential. Lifestyle choices can sometimes mean balancing enjoyment now with the financial security to live comfortably throughout retirement. Your savings should support your desired lifestyle; precise planning can make that possible. If it seems complicated, remember you don’t have to do it alone. At Northern Way, we understand retirement planning and can help you create a plan to make your savings last for as long as you need them.
