It's straightforward to make a retirement budget that includes your standard monthly bills. It's much more difficult to factor in sudden or periodic purchases, taxes and inflation. Here are a few often forgotten details to factor into your retirement plan:
Will you need to support your parents or kids later on? The need to care for others in retirement could cause financial hardships. With kids taking increasingly longer to become financially independent, you might want to factor the likelihood of supporting three generations at the same time into your retirement budget. It's entirely possible your retirement plan will need to support six adults, plus your kids. Can your retirement finances handle that?
How does your family feel about you quitting your job? You may be ready to sit on the couch all day, but everybody else in your household needs to be ready for your retirement too. Have a talk with each family member to make sure everyone is on the same page in terms of what to expect when you are no longer bringing home a paycheck.
Are you retiring from your job or retiring to something else? There's a big difference between hating your job so much you want to leave and quitting because you just don't have the time to accomplish everything you love to do outside work. It may be hard to believe, but retiring isn't a perfect fit for everybody. Figure out why you want to retire in the first place before you pull the plug on your job, because sometimes it makes more sense to jump into another line of work instead.
Have you added infrequent but periodic purchases to your expenses? Big expenses you incur only once every few years are easily forgotten when making a retirement budget. But most appliances will eventually break and your roof, windows and car will need to be replaced. Make sure you add these costs to your estimated expenses.
How will inflation affect your lifestyle? Your spending likely won't be aligned with the official inflation rate, but make no mistake -- the cost of what you spend money on will trend upward throughout retirement unless you constantly look for ways to get more for less. Plan for this increase by having investments that tend to beat inflation, and continue to monitor your spending well into your golden years.
Does your plan take into account how taxes will affect your retirement income? Various sources of retirement income are taxed at different rates. Look at where you will draw money from, and how that income will be taxed. Also, remember to factor Social Security benefits and the various claiming options into your taxable income calculations. The best way to figure this out is to put the scenarios into a spreadsheet and make specific calculations so you know for sure which is the best deal.
Will your finances still be OK if you or your spouse dies prematurely? This is especially important for those relying on a spouse's Social Security or pension income. Find out exactly what happens if one of you dies, and how cash flow and income will be affected. The worst possible time to figure out your finances is when you suddenly lose that income in the time of grief.
Most retirees spend a long time preparing for their golden years. Take the time to factor these details into your retirement plan.
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