How much retirement income will you need?

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Knowing how you will spend your retirement money is key

American baseball legend Yogi Berra once said, “If you don’t know where you are going, you might not get there.” Surely his “Yogiism” was about retirement savings, because if you don’t have a sense of your retirement goals and expected lifestyle, you certainly won’t know how much retirement income you’ll need, and you may not save enough.

While it is difficult to accurately predict exactly how much money you’ll need when you retire, some simple planning and estimating will certainly help you move in the right direction. Setting appropriate savings and investing targets starts with guesstimating your retirement expenses.

Predicting your expenses in retirement can be more art than science. The best guide is to look at where you spend your money today – and then think about whether these expenses are likely to increase, decrease, stay the same or even disappear altogether when you retire. Keep inflation in mind. And remember that your assumptions could change between now and your retirement date.

Bills, bills, bills – to pay!

With that in mind, let’s explore some of the things you’ll need to consider. The following table is an outline of expenses that may or may not change as you enter retirement.

When it comes to retirement savings, without a proper road map you are unlikely to get to where you need to be. And where you end up instead might not be where you had expected.

 Expenses that may…
Stay the same Decrease Increase
Household expenses. There’s no getting away from your regular expenses for groceries, telephone, television cable/satellite, internet, electricity, propane/bottled gas, water, home maintenance, and more.
Rent/lease payments, if you do not own your own home.
Transportation.Taxi fares, bus fares. If you own or lease an automobile or a boat, you’ll need to factor in maintenance, licensing, insurance, and petrol.
Charitable contributions and gifts.
Family, eldercare. If you are supporting dependent family members, this may continue into your retirement.
Mortgage. If you have a mortgage, paying off this debt before you retire should be a primary goal.
Saving for retirement. Once retired, the flow of money into your pension plan is reversed; you get to take it out rather than put it in.
Work-related expenses may include transportation to and from your workplace, your work wardrobe, meals you purchase, tools you may be required to supply – and any professional, association or union fees you would normally pay.
Education. If you have children, the education costs that typically arise during your 40s and 50s should soon come to a close.
Healthcare insurance. At retirement, your employer’s responsibility for paying a portion of your healthcare insurance may end. Some employers provide extended health coverage into retirement, but many don’t. Having healthcare coverage is mandatory for all Cayman residents.
Healthcare expenses. Keep in mind that as you age your healthcare needs typically rise. This includes costs that are not covered (or not fully covered) by your insurance.
Entertainment, hobbies and leisure expenses. With more time on your hands, the activities you love to do will take up more of your budget.
Travel abroad is high on the agenda of many retirees.