A general retirement planning rule of thumb indicates that you’ll need 70% to 80% of your pre-retirement income. Many estimates now indicate that may be too little for those who want to live an active retirement lifestyle. But when you realize how much you need to save, it’s tempting to question whether you really need even 70% of your pre-retirement income.
First, you should prepare a detailed analysis of your expected expenses after retirement. Sure, some expenses will decrease, typically commuting, work-related expenses, savings amounts, and possibly taxes. But other expenses are likely to go up, including travel, entertainment, and healthcare. How much you will need depends in large part on how you plan to spend your retirement years.
Keep in mind, however, that things seldom go as planned. How can you help ensure that your expenses will be lower? Consider these tips:
Pay off your mortgage.
Mortgage payments often consume 30% or more of an individual’s gross income. Eliminating this expense can drastically reduce income needed for retirement. If you can’t pay off your mortgage, consider selling your home and purchasing a smaller one for cash. Not only will you eliminate the mortgage payment, but a smaller home often results in lower utility bills, property taxes, and maintenance costs.
Get rid of other debts.
It’s not unusual for consumer debt payments to equal 10% to 20% of an individual’s take-home pay. Try to enter retirement debt free.
Keep your automobile.
Instead of purchasing a new car every couple of years, keep your current car for as long as it’s in good working order. That will eliminate car payments from your retirement budget.
Look for ways to reduce travel and leisure expenses.
Look for and use senior discounts. Plan activities for nonpeak times, when rates may be lower.
The cost of living varies significantly from city to city and state to state. You may be able to reduce your living expenses substantially by moving to another locale. However, this is more than a financial decision. You also need to decide whether you want to move away from family, friends, and familiar surroundings.
Work at least part-time.
If you still don’t have sufficient funds to support yourself during retirement, consider working at least part-time. Even a small amount of annual earnings can help significantly in funding your retirement.