"A Vacation That Lasts a Lifetime" by Julie Jason

Originally published: September 24, 2023 (distributed by Andrews McMeel Syndication)

One of the challenges on the road to retirement is understanding what it will cost to maintain your lifestyle after you leave the full-time working world. 

     A longtime reader of this column, M.R., offered his personal experience on this topic that I'd like to share:

     "I always look forward to your weekly column in the Greenwich Time. I am going to offer my input about an important aspect of retirement planning often given little ink or omitted by financial advisers. This is about the essential need to understand your spending prior to retiring and how that spending may or may not change once a person retires.

     "Some advisers think that people looking to retire need to replace all their current income. That may or may not be the case. Maybe the couple looking to retire is living on one income and saving 100% of the other's income. Maybe the couple is spending MORE than their income and going deeper into debt. Those are two ends of the spending spectrum.

     "In any case, people looking to retire should do a complete review of their spending yearly going back at least two calendar years or maybe more. They need to include taxes as well as estimated taxes [that] will need to be paid just like other bills. 

     "If there are expenses related to employment/working, such as extensive commuting, wardrobe, etc., they need to be factored in and potentially can be eliminated in retirement. However, time at work is likely to be replaced with time pursuing other activities and hobbies that will cost money going forward. We have found in 15 years of being retired that those expanded hobbies replaced the clothing and commutation costs associated with work, resulting in little changes on spending. Increases in dental and medical expenses need to be considered also.

     "A review of all expenses should include checking accounts, credit card statements and any other accounts used to pay something, including gifts! If you make monthly car payments, it's easy to assume those will continue, but if you buy a new car every five or six years, you must allow and assume you will continue that and factor that into your spending calculations.

     "If you want to travel in retirement, it's not free. Create a realistic allocation for it. House repairs, ditto. New furnaces, roofs, etc., can cost a lot. 

     "Once the lifestyle and spending needs are known, then the assets needed to produce and grow the income required can be calculated and known. Lastly, watch out for inflation assumptions. These seem to be too low based on recent experience." 

     Thank you, M.R., for sharing your perspective. These are all considerations that an individual needs to take into account for himself -- and probably by himself -- in order to really understand his situation. 

     The inquiry should start early in life. You can't run a household efficiently if you don't know your numbers. Later, it becomes a necessity; you really do need to know your numbers before you quit your job -- and review them every year after you retire. 

     There are resources to get you started. Take a look at retirement-related calculators provided by the Employment Benefit Research Institute (tinyurl.com/2s3deuwy); the Financial Industry Regulatory Authority (FINRA) (tinyurl.com/2mahzb4r); and Vanguard, an investment management company (tinyurl.com/3mzmh4h6). 

     In the end, there are no simple answers, since each family has its own way of making spending decisions, and some things, such as future healthcare needs, can't be predicted. 

     Bottom line: Think of retirement as a vacation that lasts a lifetime. Before taking that trip, you'll want to know how much that vacation will cost and how you will pay the tab. 

     Let me end with a reminder that 401(k) participants can now apply for the 401(k) Champion® Award, a competition I sponsor and fund in my role as a proponent of financial literacy education. There is no fee to enter the essay competition. If you can tell a panel of judges the value of participating and inspire others to do the same, we want to hear from you. For details, go to 401kchampion.com.