Retirement Planning Should include a Life Style Plan
When identifying retirement planning mistakes, many people might first point to blunders like failing to save enough to retire comfortably or losing your retirement savings by making excessively risky investments. While these are certainly legitimate concerns, one mistake that may not come to mind right away but can still be dangerous to your standard of living in retirement is failing to think about what will happen in the next phase of your life.
Because we spend so much time in the first phases of our lives meeting deadlines and sticking to schedules, whether in school or at a job, the substantial leisure time connected with retirement can come as a shock to the recently retired. How do you fill up this time? While there are certainly ways to do so without spending a lot of money, in some cases retirees find that funding their retirement activities costs more than they expected – sometimes a lot more. While some people deal with this by going back to work, for those who hope to stay retired, considering exactly how they are likely to be spending their time before they retire is crucial to being able to live the retirement lifestyle of their choice.
What Will You Spend Your Time On?
Why are post-employment lifestyle choices so important to retirement planning? Consider an example. Let’s say that upon retirement you find yourself bored with hanging around the house watching TV. To spice things up a bit, you take a trip somewhere. Before too long, you find that you really enjoy traveling and want to devote substantial time and money to visiting locales far and near. However, if your retirement income was predicated on staying home most of the time, you might find that you lack the funds to finance your wanderlust.
The point here is that to adequately save for retirement it is essential to form some sort of idea as to how you will be spending your time in retirement. For some, taking up a hobby such as golf or gardening may be more appealing than traveling. But golf can be an expensive avocation just like traveling, depending on the green fees where you play. If you plan to go a step further to satisfy your gusto for golf and buy a home on a golf course that is likely to further increase the cost of pursuing this interest.
All of this is not to say that you should avoid engaging in any hobbies that might be expensive once you retire – just that the best way to enable yourself to pursue such hobbies is to prepare in advance by making them part of your retirement planning process. This is also not to say that you need to know in advance every activity you will partake in once you are no longer working. However, you can budget for entertainment or hobby funds in retirement without specifying exactly how those funds will be used.
By setting up a slush fund like this you give yourself the ability to try new things without jeopardizing your budget. Of course, your slush fund may not enable you to pursue the most extravagant and expensive hobbies, but that isn’t the purpose of such a fund in the first place. The idea is to be able to seek out new things and experiences without breaking your budget, not to live a lavish lifestyle that you can’t afford.
The Social Angle
Another factor to take into consideration when trying to gauge what your costs will be in retirement is the social angle. When you are working there are often social opportunities linked to your employment, or to raising kids if you have them. Once you are retired such social avenues tend to dwindle. This doesn’t mean there aren’t many social activities you can take part in as a retiree, just that it may take more work on your part to make them happen.
What does this mean for your retirement planning? Just this: if you simply assume that your social life will continue to be as it was when you are working, you may find yourself disappointed if this turns out to not be the case when you retire. This can pose problems if you find that the steps you need to take to improve your social situation are more expensive than you had budgeted for. For instance, you might decide to move to a residence near your children or other relatives, or you might want to move to a retirement community. In either case, if you haven’t budgeted for such an event beforehand, you might find that taking such an action strains your budget more than you might like.
The takeaway: to avoid encountering difficulty in being able to pursue the social life of your choice when you retire, think about what you will need to do to make it happen prior to retiring. This includes considering whether you will want to move somewhere else when you retire and accounting for any extra expense involved in doing so.
Planning for the Next Phase of Your Life
To avoid the mistake of failing to consider what your life will look like once you retire, the key is to take into consideration what your day-to-day lifestyle will look like before you retire. To do this, it can help to draw up a list or chart that takes into account the factors discussed above. For instance, you could make a list with the following subheadings:
- Social activities
Under each of these categories you would write down whatever comes to mind until you have a complete list containing the main portion of the possibilities in each category. The next step would be to estimate the costs associated with each of the options. When doing so, as mentioned previously, try to include an extra amount to give yourself the flexibility to do things you hadn’t previously planned for.
After you’ve calculated these costs, you can add this amount to your other retirement expenses such as food, healthcare costs, etc. to complete the retirement budgeting process. In going through this budgeting exercise, you might find that the numbers don’t add up – that you can’t do everything you had hoped to do. If this is the case, you will have to make command decisions pertaining to your retirement lifestyle. Can you work harder now so you can set aside enough money to make your dream lifestyle a reality? Or is such an approach simply unrealistic? If so, you will need to adjust your lifestyle expectations to fit into the confines of the retirement income you can reasonably expect to generate.
Whatever the case may be, by going through this exercise in the retirement planning process you can help avoid the disappointment of finding out that you don’t have the funds you need to do the things you would like to do when you retire. By thinking about these issues in advance, you can either take the steps you need to take now to make your preferred retirement lifestyle a reality or make more realistic plans to avoid being blindsided by a lack of funds when you retire.