The ideal retirement picture is different for everyone. Some hear the ocean. Some envision a personal renaissance, with time to develop a new skill or hobby. Others imagine traveling the globe. Some aren’t sure what their dream retirement looks like, but many feel they won’t have enough money to enjoy it. A CNBC survey revealed that 53% of Americans feel behind in their retirement savings, and research conducted by Northwestern Mutual found that U.S. adults estimate that they will need $1.46 million to retire. The truth: There is no magic number for retirement. The amount of money savers need to retire depends on the lifestyle they plan to lead. “Plan” is the operative word. It’s the only way to prepare for the cost of retirement pursuits. Here are some considerations for creating a lifestyle plan. [1]
When is retirement?
Age may be the most essential number when thinking about retirement life. When does retirement begin? The Northwestern Mutual study discovered that the expected retirement age varied generationally, with the average Boomer anticipating retirement by age 72, followed by Gen X at 67, Millennials at 64, and Gen Z at 60. While younger generations began saving progressively earlier, these groups also expect to live longer. Those who retire early trend toward higher spending on travel and entertainment, so Millennials and Gen Z will need strategies to make their money stretch farther than Boomers and Gen X. [2]
Where is retirement?
Retirement planners must answer the questions of where they want to go when the time comes and how to finance it. Housing and location are part of this equation. Provision Living, a senior living community provider, surveyed 2,000 Americans and found that 78.7% of their participants planned to reside in the U.S. Retirees who stay in their original paid home will not incur housing costs until they need long-term care. Those who plan to live on the coast or in another prime location may need to sell their home as payment toward new housing. Some retirees split their time between two regions. This can mean continued housing costs or seasonal rental income from the first home can subsidize the second property. Globetrotting individuals may choose to live in a more or less expensive part of the world for a time. Additional considerations for determining a retirement location include climate, cost of living, healthcare access, community amenities, transportation, accessibility, homeowner’s association fees, recreation options, and long-term care facilities. [3]
What to do in retirement?
Retirement brings a lot of free time. Advanced thought about how to fill that time will further focus the picture. Some retirees hold part-time jobs that provide extra spending money. Some devote time to volunteerism, which may not generate income but costs little. Hobbyists spend money on materials, projects, and equipment. Travelers need extra money in their budget for transportation, dining, and entertainment. However, everyone should include occasional meals, trips, or evenings out in their financial planning. Provision Living broke down the “ideal retirement day” in its survey. Participants envisioned spending 2–3 hours socializing, 3–4 hours on leisure activities, and 1–2 hours dining out. Achieving this model throughout retirement would not be possible for the average person without allocating funds and practicing some restraint. According to Morgan Stanley, retirees who use more of their income on food and beverages to entertain and socialize at home show a more rapid decline in spending than other groups. This type of compromise, staying in with friends or family rather than going out, helps retirees enjoy life within their means. In reality, retirement for most is an average of all these scenarios: light work, volunteerism, hobbies, leisure activities, travel, entertaining in the home, and also dining out. With modest spending habits and some tradeoffs, they can afford the essentials and enjoy retirement, even if they do not feel they have enough saved. [4]
Spending for most retirees follows a similar trajectory even with lifestyle variation. In early retirement, between ages 65 and 75, the rate of spending increases and then decreases in middle retirement, between the ages of 75 and 85. It rises again when health and long-term care needs become a factor toward the end of life. One financial strategy involves budgeting for this spending pattern, with more funds designated for the early and later part of retirement and less for the middle years. Part-time work in the early years can also help to offset the higher spending during that period and save more for the inevitable increase later on.
Finances shouldn’t dictate the quality and enjoyment of life. Savers who conceptualize the life they want to lead in retirement can build a framework for spending and have a greater chance of realizing their dreams. SHP Financial can help you tailor a retirement plan based on your situation. For assistance in forming a comprehensive retirement strategy, click here to sign up for a complimentary review.
Sources:
[2]https://news.northwesternmutual.com/planning-and-progress-study-2024
[3]https://www.provisionliving.com/survey-reveals-americas-ideal-retirement-lifestyle/
[4]https://www.morganstanley.com/articles/retirement-life-spending
