Many try to predict what their costs will be during retirement to try to make sure they’ve saved enough when the time comes. According to a recent article, many people may not be going about it correctly.
A NASDAQ.com article
points out that retirement planning shouldn’t be handled the same way we handle every day budgeting. People budget their spending in terms of the income they receive, but in retirement, they’re working with a lump sum rather than steady income.
So how do you begin to prepare for that reality, think about it in terms of your daily cup of coffee, the author writes.
“Let's say you are 55 and one of your favorite things to do on weekends is walk to your local coffee shop, buy a large cup and chat with friends. When you think about retirement, which you plan to do at 65, you imagine doing this every day. How much will that cost? Let's assume that today your coffee costs $1.95 per cup. And for simplicity's sake, let's remove inflation from the equation and assume the price of your cup will not change. That means:
Each year of coffee will cost $711.75.
Ten years of coffee will cost $7,117.50.
If your retirement lasts 30 years, you will eventually spend $21,352.50.”
The author points to a financial tool that helps you figure out how to get to the point where you can afford the daily cup of coffee – every day of your retirement. The online resource – called CoRI – can help those who are ages 55-64 estimate the cost of a dollar of annual lifetime income in the future. By using this type of tool, you can begin to take a more realistic look at your budget in retirement, the author says.
For more tools to help you plan for the realities of retirement, see our resource page of financial calculators