Every financial adviser on the planet has some suggestion for what the most important “retirement number” is. Some are even valid guidelines! But the one most tend to leave out is how much you’ll spend.
Photo by Nancy Nance.
In case you haven’t thought about the basic principle in a while, retirement works like this: Once you’ve saved up enough money, you can stop working and live off just what you’ve saved for the rest of your days. Sounds simple, right? Except not everyone has the same expenses in retirement (just like during rest of your life). One person may want to travel the world and live in an expensive city, while another person may want to spend their days in a paid-off house quietly sitting on their front porch and tending to their small home garden.
As personal finance site Budgets Are Sexy explains, this expense gap is key to understanding your retirement. While you can’t know exactly all the expenses you’ll have when you’re older, you can at least try to make an estimate:
How can anyone tell you you’ll need $2 million or $3.5 Million without having the slightest clue how much your lifestyle costs? Does a person living off $1,000/mo need the same as someone going through $10,000/mo? Do we all have the same hobbies and dreams and future goals in life? Or do we all just suck so bad that we need to hoard as much $$$ as we can ‘cuz we’re all doomed?
While you’re planning your retirement, ask yourself what kind of lifestyle you want to live. What hobbies do you want to take up? How much travelling do you want to do? While you’re at it, what kind of medical expenses do you think you might face based on your family history and the way you’ve lived so far? You’ll never come up with a perfect answer, but thinking about the way you plan to live will have just as much (if not more) of an impact as blindly following a chart you saw online 40 years before you retire.
Finally — The Magic Number You Need to Retire!! [Budgets Are Sexy]