The best way to discover if you can afford to retire is to start living on your retirement income while you’re still working. When you take your retirement budget on a test drive, it gives you time to adjust your spending habits.
Cut Back on Eating Out
While you’re still working for the federal government, spending money to eat out for breakfast and lunch may be a necessity. But how much are you spending on restaurants or take-out food and gourmet coffee during the weekends?
Multiply that amount by 52 weeks. What’s the yearly total? Now, multiply your yearly total by the number of years you’ll likely be retired – let’s say 30 years. That’s a lot of money coming out of your nest egg for eating out and buying lattes. Cut back now and it will be easier to cut back in retirement.
Start Breaking Some Spending Habits
Studies show that, during the first two to three years of their retirement, far too many retirees continue to spend they way they did when they were working. Extravagant gifts for kids and grandkids. Always picking up the check when taking the entire family to dinner. Or, spending too much on gourmet coffee you can make at home. Though these spending habits may be hard to break, it makes sense to cut unnecessary costs in the years leading up to retirement and put the money you save into an emergency fund.
“Also think about getting an AARP membership and start taking advantage of senior discounts for age 50 and older.”
Eliminate Unnecessary Spending
Start with eliminating expenses you simply don’t need. Expensive magazine or book club subscriptions – visit the library instead. Eliminate the cost of TV packages you rarely watch to lower your monthly bill. Consider if you really need a landline when you have a cell phone. When you add up these monthly costs you may see you’re spending too much on things you can easily live without. Also think about getting an AARP membership and start taking advantage of senior discounts for age 50 and older.
Consider Downsizing Your Home Before You Retire
Housing expenses in retirement consistently take the largest bite out of the average retiree’s income. This includes mortgage (or rent), property tax, insurance, maintenance and repair costs. If you make the move to a less expensive home in your area, you can lower the percentage of your yearly income spent on housing before you retire. Then you can add some of the proceeds from the sale of your home to your retirement nest egg or to purchase a lifetime annuity.
Contact an FRC® trained advisor to lean more.
