Do You Need To Replace 80% Of Your Annual Income For Retirement?
According to the rule of thumb, if you are aiming for a comfortable retirement, you need to replace 80% of the total money you earn every year. However, according to a retirement study, the income replacement percentage in the case of a typical American lies between 54% and 87%. What would individuals, who lie in the lower rung of this range, do? While having a target to replace 80% of your annual earnings is fantastic and you should be working towards that objective, you have no reasons to worry about having a dearth of money if you somehow fail to make the mark. Why is that? Well, below are the reasons. Check them out.
You Tend to Spend Less in Retirement
By the time you decide to retire, you stop saving. However, you don’t need to spend money on things like childcare, mortgage, and life insurance premiums. Also, the expenditures on things when you used to work such as your wardrobe, commuting from home to office and back, dining out, etc. will come down automatically. All in all, you will cut down on the amount of money you used to spend on your daily lifestyle. A young and professional parent has a mountain of things to worry about as compared to a retired individual. Therefore, the expenses differ a lot.
Supplementing Your Retirement Earnings is Not Tough
The perception that people had about retirement is gradually changing with time. Four to five decades ago, retirement was nothing but termination of working life. Today, it’s like stepping into a new phase of life. After retirement, people get the opportunity to explore other areas of life and indulge themselves in activities of their interest.
They don’t really need to think that their potential to work is zero after hanging up their boots. The internet is making things easier these days. For retired individuals, just need to step on the accelerator and move towards the direction of their choice. Considering retirement as just a change of phase can be the perfect way to enjoy working after retiring from professional life. With this, you can easily keep up with all the expenses that you can incur in retirement.
You Can Come Up with Smart Decisions
As per the survey conducted by the United States Bureau of Labor Statistics, retirees have to cope with three major expenses – housing, healthcare, and transportation. A senior citizen tends to spend almost 62% to 63% on these categories. For people belonging to the age group of 50 to 64 years, healthcare expenses can be estimated to be 10% of their budget. However, for people aged more than 85, healthcare costs can jump up to 20%. A 65-year-old, in the pink of health, might be required to spend something in the proximity of $351,000 on healthcare. However, there is nothing to worry about. You can come up with smart decisions before taking retirement and not let these expenditures put you under pressure and take a toll on your budget.
What Can You Do to Save Money in Retirement?
As a first step, aim to pay off your mortgage before you take permanent leave from work. In that case, the only thing that you need to pay for is your home’s property taxes. As an alternate option, you can downsize your house. This way, your housing costs will be much less in retirement. Downsizing, contrary to popular perception, is not sacrificing. You are being smart with your hard-earned money. That’s it.
If you save more, you will consequently maximize your lifestyle. Why should you waste your money on rooms that you don’t need anymore? You can use that amount on other areas like food and travel. Transportation expenses can come down if you choose your vehicle wisely. Also, you would save a substantial amount on insurance coverage. As far as the healthcare expenses are concerned, it will always be beneficial for you if you check out your long-term insurance beforehand.
To ease out things in retirement, you need to think practically and plan out things that would work the best for you. Replacing 80% of your earnings is always a practical strategy. If you fail to attain your objective, there is no need to get tensed or anxious. Have a detailed idea about your financial limitations. You can come up with plans according to them.
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