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Will You be Able to Afford the Lifestyle of Your Dreams in Retirement?

Rachel Hartman

While a retirement wish list might include roaming the world or pursuing a luxurious hobby, the daily realities of paying off a mortgage or funding a child's education can make it tough to save. Most Americans (70 percent) say their financial planning needs improvement, according to the 2018 online survey by Northwestern Mutual.

Setting up a roadmap can lead to better days ahead. "Thanks to increased longevity and a new mindset about living a life of purpose, Americans are increasingly finding their retirement years to be a launching point instead of a finish line," says Surya Kolluri, a managing director at Bank of America Merrill Lynch. Use these guidelines to line up your bank accounts with your desired retirement lifestyle.

Think about what you want to do. If you have specific activities you enjoy now, you'll likely want to continue them in retirement. "When we picture a specific goal for retirement, like a dream trip to Europe or a second home, it motivates us to save more regularly and avoid impulsive splurges along the way," says Pierre Habis, president of PurePoint Financial. Set aside some time to think through the details of what you want to do. If you have an urge to travel, write down the places you'd like to visit. If you want to move, think about the type of housing you'd like to have.

[See: 10 Retirement Lifestyles Worth Trying.]

Try out retirement activities ahead of time. Sample some of the goals you're dreaming of before actually retiring. Perhaps you've been longing to go on an extended cruise, but you have never been on a large ship. You might take a three-day cruise to a nearby location to make sure you enjoy the style of travel. "Be open to trying new things and moving slightly out of your comfort zone," says Scot Landborg, senior wealth advisor for Sterling Wealth Partners in Tustin, California. "Maybe you're a type A personality, but an art class brings you more enjoyment than you might think. Maybe you're not super athletic, but enjoy the camaraderie on the pickleball court." Ask friends or family members who have already retired about their experiences. Have them share with you their financial strategies or lifestyle habits as well as any lessons they've learned along the way.

Know how long you want to work. The proportion of people who work in retirement has grown over the past several decades. Between 1977 and 2007, the employment of workers age 65 and older increased by 101 percent, according to the Bureau of Labor Statistics. If you decide to remain in the workforce past age 65, you'll have more years of income and opportunities to save but less free time. You might choose to take on temporary work or a side gig to help fund a specific goal, like buying a new vehicle. Continuing to work on a part-time basis or starting a new business in retirement could provide some extra income while also allowing a flexible schedule.

[See: 15 In-Demand Jobs for Seniors.]

Establish figures. Once you have an idea of the lifestyle you'd like to have, it's important to run the numbers. "Consider the price points and financial implications of retirement activities," Kolluri says. If travel is on your mind, spend some time researching your destination list. Look at transportation and lodging costs, as well as currency exchange rates. For a new home, consider if you want to downsize or move up in square footage and examine housing prices in the area you'd like to live. Hobbies often come with costs too.

Don't overlook health care. It might be easy to dream about your future, but keep in mind that medical expenses will need to be covered as well. "Most people underestimate the cost of Medicare premiums, deductibles, copays and coinsurance," says Danielle Kunkle Roberts, co-founder of Boomer Benefits in Fort Worth, Texas. It might be helpful to sit down with a financial advisor to estimate what you'll spend on medical care during retirement. You might also decide to open a health savings account, which allows you to set aside tax-free money that can be used later for medical expenses.

Think about what you'll have. In addition to estimating the price of the life you want to lead, look at the funds you'll have access to in retirement. "You need a written income plan," Landborg says. "You want clarity on where your income is going to come from." That might include Social Security, investments and income from a side job.

[See: 12 Great Things About Retirement.]

Align your savings plan. Compare the income you plan on receiving during retirement with the dream list you have created. If your estimated incoming funds will cover the lifestyle you're hoping for, you'll be set to live out your dream retirement. If not, you'll want to make some changes. You might decide to save more now to build up a nest egg or look for ways to reduce costs related to your retirement goals.

If you opt to set aside more now, sit down and look at your current expenses and take steps to prioritize your long-term goals. "When you sit down to pay bills each month, paying yourself first is a good habit to follow," Habis says.

Spending more might not be necessary for a dream lifestyle. "A happy retirement often means more time to pursue things of your choosing," Landborg says. "Not all of those things need to be expensive." Low-cost activities like having a movie night with the grandkids or trying out new recipes might be the exact fulfillment you're looking for.



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