Do You Know How Much Money You Will Need To Fund Your Retirement?


One of the first questions I ask new clients is this – do you know how much money you will need to fund your retirement?

This is potentially the most important thing you need to know when it comes to planning your retirement. That dollar figure will underpin all the other decisions you make about how you structure your retirement finances

And yet, in my experience, preparing a detailed budget for retirement is one of the most neglected parts of the retirement planning process

I get it, putting an actual dollar figure on the table can feel scary and overwhelming. Many people assume bills will get paid and money will be in the bank just like it is today while they are working. But that isn’t necessarily true, especially if you don’t plan for it. Moving from wealth creation to wealth preservation is a big shift – a shift in your cashflow and a shift in your mindset.

Trust me, once you have that dollar figure on the table it helps to get all the other things in place so you can feel confident about setting yourself up for retirement.

Know Your Numbers

Every financial plan should consider beginning with a critical look at current spending. It seems like an obvious part of budgeting for retirement, but it is often skimmed over. When you are working, your bills get paid, and you probably have money left over for some of the finer things in life. You probably aren’t tracking the money going out in detail, as long as the big bills get paid. And it is normal for people to assume this is how things will continue in retirement. Because no one even considers retirement until they know they have enough money and capital to cover their costs, right?

The reality is that very few people in those stages before retirement have a clear picture of how much they actually spend each month. And then a year or two into retirement they realize with a shock how much they have eaten into their savings. Understanding your costs before you retire gives you a baseline for forecasting expenses during retirement.

When assessing your current expenses, it is extremely important to make sure you include everything:

  • Non-discretionary expenses like mortgage repayments, credit card repayments, vehicle repayments and maintenance, utility bills, groceries, and taxes
  • Discretionary expenses like entertainment, restaurant meals, renovations, garden landscaping, gym memberships, vacations, visiting family and Christmas presents for all the grandkids

Discretionary expenses are where we are all likely to underestimate how much we spend. All those little (and sometimes big) extras add up. It pays off down the track to get really clear on all these optional costs.

Re-evaluate Your Expenses

Now you have the baseline of your current expenses, you can start putting together a picture of the expenses you will need to cover once you retire.

Discretionary spending will account for most of the differences between current and future expenses This is where you have most control over how much you spend and what you spend it on

Your discretionary spending can fluctuate once you retire. Some costs will increase, and some will decrease, depending on the retirement lifestyle you want. You should consider making some conscious decisions about what you will and won’t spend money on

  • When planning expenses for retirement, consider some of these factors
  • Potential decreased expenses associated with leaving the workforce (for example, fuel, taxis, professional memberships)
  • Increased (or sometimes decreased) expenses associated with socializing and entertainment
  • Increased expenses associated with visiting family or taking vacations
  • New expenses associated with taking up hobbies or sports
  • Unexpected expenses associated with caring for parents or an adult child returning home
  • Increased or unexpected expenses related to health and wellbeing
  • Changes to interest rates, insurance fees and investment costs

To glide into your retirement with confidence and certainty, you need to have a realistic estimate of your retirement costs. From there you can start looking at the best ways to structure your income options to deliver what you need. And then you can start making smart choices about changes you need to make now to set yourself up for the future

You should consider moving on this soon to have a plan in place.

If you would like to come in to discuss your income plan budget, please consider booking your Complimentary Retirement Planning Session.

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The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice to meet the particular needs of an individual’s situation. Life Design Financial is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management LLC (AEWM). AEWM and Life Design Financial are not affiliated companies. CA Insurance License #0B075169. 1217977-02/22

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