How much will you need for retirement? That is a harder question to answer these days, given the uncertainty of healthcare costs, living longer, and the market ups and downs.
Valerie RumboughTypically, individuals plan for retirement assuming that they will spend the same amount each year, adjusting upward for inflation. However, that may not be the case.
Michael Stein, in his book entitled “The Prosperous Guide to the New Reality,” states that there are three stages in retirement.
The first stage is the Go-Go stage. Right after retirement, you are busy traveling and doing other things you didn’t have time for earlier. This stage may be the one where you spend the most. The second stage, the Slow-Go stage, may keep you home more, thus you may not spend quite as much. The third stage is the No-Go stage, where medical issues and the death of a spouse may keep you from getting out much at all.
If these stages hold true for you, then you need to plan to spend more in the early years. However, exercise caution, as you don’t know how the later years may affect you financially. Something you may want to do is to determine how much you will need for living expenses during retirement. Then, determine what you might want to spend in the first few years of retirement for travel and other expenses. Set the travel money aside in a separate account. Then you can access it when you want to without worrying about spending money you may need later on. The important thing to remember at this point is to be sure to save as much as you can so that you don’t have to worry later on. Remember the ant in Proverbs 6:6-8!
Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.