When we think of a successful retirement, we often think about how much we are saving up. While it’s important to plan ahead and figure out how much to save for the future, part of the equation, when it comes to a successful retirement, is how much you spend during retirement.
As part of The Retiree Next Door movement, MoneyTips and FinCon are bringing to light some of the ways you can plan for a successful retirement. While the results of the recent survey are aimed at helping Baby Boomers in the United States, the reality is that you can learn from some of the data about successful retirees… no matter your age, and even if you live here in Canada.
One of the biggest things I got out of the survey data is that the way you spend matters to a successful retirement.
How Much Do You Plan to Spend in Retirement?
The key to a successful retirement is planning. You, of course, should plan now to save up for retirement. There are a lot of great tools, like RRSPs and TFSAs, that can help you save more efficiently, thanks to tax breaks.
However, planning doesn’t stop when you figure out how much to save up and then you retire later. You also need to plan your withdrawal rate and your spending. According to the MoneyTips.com report, 65 per cent of successful retirees spend enough to live comfortably, while roughly 35 per cent live frugally. This means that less than one per cent of successful retirees spend lavishly.
The key is to make sure that your idea of “living comfortably” makes sense for your situation, and is realistic given your retirement finances.
What Do You Plan to Do in Retirement?
So many consumers focus a lot on accumulating wealth for retirement, but they don’t think about what happens after they reach the point of retirement. Planning ahead for your retirement makes sense, especially when you consider that the MoneyTips.com report points out that 49 per cent of even successful retirees worry about finances.
If you have a plan for the future, you are less likely to worry. The first step is figuring out what you want to do in retirement. What would make you feel as though you are experiencing success during retirement?
Think about the kind of lifestyle you want to live. Would you decide to downsize? If so, that could free up more resources for your future. What activities do you want to participate in? Do you want to travel? Take up a hobby? Go back to school and earn another degree? Perhaps you want to work on your own business. Or maybe you just want to kick back and relax for a couple of years.
Figure out what your ideal lifestyle would look like during retirement, and determine what would make you feel comfortable. Do you like to live near modern amenities? Would you rather live in a community where you could have access to activities and where someone else took care of your yard? Think about these items, and then plan your retirement finances around what you think would qualify as “comfortable.”
Once you have an idea of what comfort looks like, you can estimate how much you would need to save up to make it happen. The reality is that how much you need for a successful retirement isn’t about hitting some number. Instead, it’s about making sure that your individual preferences are achievable for you. If you don’t perform this calculation now, you’ll be in the boat of “living frugally,” trying to pinch pennies, instead of enjoying the “comfortable” retirement you prefer.