What to Know About Retirement Expenses
One of the biggest questions that most workers ask themselves today is how much money they should be putting away right now and how do you know if you have enough money to retire.
Most retirees make the mistake of underestimating how much money they will need in order to maintain a comfortable lifestyle, The Balance says. Many often overspend because they either did not plan ahead or didn’t know how to plan for their retirement.
It is easier to know how much you need to save when you have an idea of how much you will need to maintain your standard of living.
The Balance suggests two simple steps that you can do to estimate your retirement expenses and determine how much money you will need to have in order to retire in a lifestyle that you are comfortable with.
Estimate retirement expenses
To begin to figure out your retirement expenses, use your current monthly income as your base and subtract and add any expenses you can expect to change when you retire.
- What is your monthly net take-home pay? This is the amount that gets deposited into the account after all deductions for taxes, retirement accounts, and insurance is deducted.
- What expenses will still need to be paid out of your pocket once you are retired (i.e., health insurance)?
- What extra expenditures do you budget into your retirement? Such as travel or health care
- You should also budget in monthly savings for items that will need to be replaced such as a car or major home repairs.
You will also most likely find a few expenses that will decrease or even disappear once you retire. Think about fuel and car maintenance, if you commuted a distance to work. What will your dry cleaning bill look like? Better yet, if you paid off your mortgage, you can cut out a huge monthly expense.
As you begin to add up your retirement expenses, in addition to the above deductions, you should also consider both income tax and property tax as well as homeowners insurance.
You should estimate the tax you will owe on your retirement income a well.
One way to see what your taxes may look like is to do a tax projection. This is your best guess of what your taxes will look like in your retirement years.
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