Think You Will Spend Less When You Retire? Think Again
Many people planning their retirement investment strategies think they will spend less when they retire
. It is not hard to see why that assumption exists; you would not have to shell out money for eating out every day, or need to pay for gas for your car or bus fare. Workers who previously had to establish and maintain their office wardrobe, buy programs or tools, or getting more training or education may do away with these expenses as soon as they hit retirement. The problem with this concept is that people usually fail to consider retirement expenses that take place of these costs. You could actually spend as much, if not more, as a retiree. Here are some reasons why:Life expectancy is no longer what it used to be. It is somewhere around 78 years today, compared to about 70 years a few decades back. With medical advances, better healthcare, and access to information, you may live well into your 80s or beyond. This affects your finances as you will need to take healthcare costs and inflation rates into account.
It is a given: the costs of medical attention will shoot up as you age. One reason why this is so is the price you have to pay healthcare insurance. Premiums usually get more expensive every year (even after Medicare enrolment) because providers figure that you will require special or long-term care in the future. Even at the onset of retirement, health problems could emerge and these are the problems that you have to pay out of your own pocket.
Inflation, like taxes, comes with the territory, or in this case, the economy. If you are like many recent retirees, you may live around a couple of decades more. The pinch of inflation can be felt a few years into retirement, but what if you expect to live more than twenty more years? Inflation is going to be an even bigger crimp on your funds in that case.
How you spend your retirement years also impacts how much money you will be shelling out in that period. If you do not plan to downsize your home and your entire retirement lifestyle, but rather plan to go in the opposite direction and live it up, it is obvious that you will spend more. If you want to travel, take up a couple of sports or a few hobbies, or have other goals you did not have as an employee, you will not spend less when you retire, so make sure you have a sizeable nest egg or investments that generate good yield.
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