Building Your Retirement Plan: Estimating Your Retirement Expenses

Welcome to the Freedom Nation podcast with Jeff Kikel. On this show, Jeff shares his expertise in financial and retirement planning from a different perspective. Planning for Your Freedom Day, which is the first day that you wake up and have enough income or assets and do not have to go to work that day. Learn how to calculate what you need, how to generate income sources, and listen to interviews from others who've done it themselves. Get ready to experience your own Freedom Day.

Hey, everyone, welcome back to the Freedom Nation channel. This is Jeff Kikel The your host. Today we're going to walk through a crucial step in creating a successful early retirement plan. Estimating your retirement expenses. Now having a clear understanding of your current and future expenses is essential to ensure that your retirement savings will cover your costs. Grab a pen and paper and let's dive right in.

First things first, you're going to need to create a budget that outlines your current expenses. This includes housing costs, health care expenses, and living expenses. Start by listing your monthly bills such as a mortgage and rent, utilities, groceries, insurance premiums, and any other recurring expenses. Don't forget to include occasional expenses like car maintenance, and holiday spending. Once you've got everything down, add it up and get a clearer picture of your current monthly and annual expenses. Now, if you'd like down in the show notes, there's a link to a budget calculator that I created that I use with my clients feet, please feel free to download that and use it. I find it very, very simple and easy, and includes a section for savings as well. So as you start to calculate everything, you can actually just add those pieces to the pie.

Now that you've got a solid understanding of your current expenses, it's time to see how they may change in retirement. For example, you may plan to travel more take up new hobbies move to a new location. All these factors can impact your retirement expenses. So go through your list of current expenses and make any necessary adjustments. Will your mortgage be paid off by the time that you retire or that you let you know that you get your freedom day? Well, great, remove it from the list. Planning to downsize and locate relocate, adjust your housing costs accordingly. Don't forget to add any new expenses that you anticipate like travel, and hobby cost. Once you've made those adjustments. Calculate your new estimated monthly and annual retirement expenses.

Now step three, healthcare one of the most significant expenses in retirement is health care. As you age, you may require more medical attention, and it's essential to plan for these costs. You might want to consider Medicare supplement plans, long term care insurance, or other options to protect your retirement savings from the high cost of health care. Now, if you are leaving a job and you're younger, well, you need to look at the cost of health care and what that's going to cost you until you reach Medicare age and you know, which is age 65. Now, research the cost of these insurance options and include them in your estimated retirement expenses. It's always better to be prepared for health care that to be caught off guard.

Now step four, we need to take into account taxes. Even in retirement, you're going to need to pay taxes on your retirement income. While you may be paying fewer in retirement than you did. While you're working. It's crucial to consider the tax implications of your retirement income sources such as pensions, Social Security and investment income. Now this is a good time to consult with a tax professional that can help you estimate your potential tax liability in retirement and include that in your retirement expense calculations as well.

Step five, we need to account for inflation now, for the last 10 to 15 years, we really haven't had much inflation in our country in the United States. But inflation now is having a significant impact on retirement expenses. So it's important to factor in when estimating your costs do to do this, you can use an online inflation calculator or consult with a financial advisor. A generally a conservative estimate of annual inflation is around two to 3%. Multiply your estimated retirement expenses by the inflation factor do account for the cost of living over time and you're going to need to do that for each year. Remember, you're going to have to periodically reassess your retirement expenses as you approach retirement and ensure that they're keeping up with inflation.

Now Step six is really key. And that's to create a safety buffer. It's always a good idea to create a buffer in your retirement expects and Spence estimates, you just don't know how much it's going to cost when you get there. The way I always tell people is Do you spend more money on the weekends? Or do you spend more money during the week when you're at work? Typically, we spend more money on the weekends and guess what retirement and Freedom Day is a whole lot of weekend and not as much work. So we tend to spend a little bit more and especially in the early years when we first retire, life is full of surprises. And having a little extra savings set aside, can help you navigate the unexpected changes in your financial situation, consider adding about 10 to 20% buffer to your estimated retirement expenses gives you a little bit of wiggle room. At the worst case scenario or best case scenario. You don't have to use them and those get to be used for other things.

So there you have it. By following these few steps, you're going to have a better understanding of estimating your retirement expenses, and allowing you to plan and save accordingly. Remember that planning for retirement is a process so you revisit and update your estimates as needed. Now if you found this video helpful, please give us a thumbs up and don't forget to subscribe to our channel for more financial planning tips and advice. If you have any suggestions or questions, feel free to leave them in the comment section below and I respond to them within a day. Thanks for watching and happy planning.