June 24, 2024 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for June 24, 2024

How Much Income Do I Need in Retirement?

Radon and Murs discuss the income needed during retirement. It’s important to understand that spending needs in retirement will differ significantly from your current earnings due to various factors such as taxes, savings, and job-related expenses.


How Much Income Do I Need in Retirement?

Learn about a comprehensive approach to estimating retirement expenses by identifying costs that will decrease or disappear in retirement. You will also learn about expenses that will remain constant or increase during retirement and the importance of examining your current net income and expenses to understand your spending patterns better.

How Much Income Do I Need in Retirement?

Today’s topic is something everyone who is thinking about or in the middle of retirement planning is concerned about: how much money do I need in retirement?  

How do I figure out my income? 

If you go online and use one of the calculators that claim to help you figure out the income you need in retirement, many will examine your current income and state that you need 80% – 90% of this figure in retirement. 

For example, if you make $100,000 a year, the calculator will likely state that you need to have $80,000 in income each year in retirement. 

We don’t like this approach because prior to retirement, you may be earning a high income, have heavy contributions to your 401(k), and other current expenses that you may not have in retirement. 

Let’s dive into how we start to approach the income in retirement question.  

What are Some Things That You Won’t Be Spending on in Retirement? 

When you’re working, you’ll pay for a lot of things that you might not even realize that you won’t be paying for in retirement. A lot of these expenses will go down or be fully eliminated in retirement, starting with: 

  • Commuting costs: Depending on where you live and go to work, you are spending time and money getting to and from work. Your commute costs will drop, which may mean gas, bus tickets, train tickets, parking, and other transportation expenses. 
  • Attire: If you wear a uniform, suit, dress, or other work-specific clothing, you will not have the added cost of regularly buying and maintaining these clothes in retirement. 
  • Professional development: If you take continuing education courses or pay to maintain licensing, these costs will also be lower or eliminated. 
  • Food expenses: A lot of people go out for lunch because it’s easier to go to a restaurant or cafe than to make lunch at home. You may have a routine of going to a specific spot near your work to grab something to eat or drink before or after work. While $10 – $30 a few times a week or every day may not seem like much, it adds up quickly. 
  • FICA Payroll taxes: You won’t need to pay FICA (Federal Insurance Contributions Act) payroll taxes, since they only apply to wages. 
  • Child-related expenses: Kids will, hopefully, be out of your budget when you retire, too. Of course, there are some exceptions, but you likely won’t need to help pay for college or other expenses relating to raising your kids in retirement. 
  • Travel: If you travel a lot for work, hotel, meals and transportation will go away. 
  • Memberships: Any work-related memberships that you have you won’t need to pay for anymore. 
  • Contributions: You won’t continue to add to 401(k) or IRA contributions. Some working folks are adding $30,000 to their 401(k) each year, which is a significant boost to their after-retirement income. 

Any of the associated work expenses that you have will come off when you retire, which can dramatically decrease your expenses. 

While not exhaustive, this list is a good starting point to think about things you are paying for as a working person that you may not need to pay for as a retired person. 

How Much Money Do You Have Coming in Each Pay Period? 

An easy way to start thinking about your income is to consider how much money you have coming in each pay period. If you have $8,000 coming in a month and can save $4,000, the rest of the money is for expenses. 

But, what on the list that we just mentioned will you not be paying for any longer? 

Some expenses on the list will still be there, even if they’re reduced, and we need to account for them. 

You will still need to pay for: 

  • Housing costs. Even if your home is paid off, you need to pay for things like property taxes and utilities. Our software will be able to account for mortgage payments that may only be there for a part of your retirement and will drop off. 
  • Health insurance costs may change, and these costs may go down on Medicare. If your employer pays 100% of your healthcare costs, then your expenses may go up in retirement. You may even need to cover your own healthcare if you retire before 65, and all these expenses must be considered and accounted for to know how much money you really need in retirement. Shawn Southard, our Healthcare Professional Specializing in Medicare can help you find the best solution for your needs. 
  • Many retirees have very busy schedules, filled with hobbies, events, and travel. You’ll likely need a car, so determining a budget for gas and car maintenance is important. 
  • Insurance needs will vary, but you may need homeowner’s insurance, life insurance, long-term care insurance, and others. 
  • FICA payroll taxes will be gone, but you’ll still need to pay Federal and State income taxes.  

Hopefully, you’ll be at a place where you don’t have debt when you enter retirement. Debt and the high interest rates that come with it will impact your income. 

Fun Stuff in Retirement 

You’ve worked hard to reach retirement and you should plan to have some fun. A few expenses that you’ll need to consider are: 

  • Travel costs 
  • Date nights 
  • Visiting family 
  • Equipment and supplies for hobbies 

Oftentimes, we can employ strategies to reduce income tax in retirement, and what helps with planning and strategy is knowing how you plan to spend your money in retirement. 

Income matters. When you know what you’ll be spending, that’s when you can really see if you have enough in retirement to live the life you want. 

When you’re working and earning a good income, you may not be overly concerned about swiping your credit card, and it can put you on autopilot because you know that you can pay for these expenses. 

Once you understand your expenses and wants for the present and future, it puts things into perspective and gives you something to work towards. 

We work with our clients to build a retirement-focused financial plan specific to their situation and goals. We build out the plan and provide ongoing communication to help you understand your expenses so that you can move closer to your retirement goals and what you want in retirement. 

If you’re interested in having us create a retirement-focused financial plan for you, we would love to hear from you. 

Get in touch with us and we’ll schedule a 15-minute consultation to discuss retirement with you.