How to Determine Your Retirement Lifestyle

SmartAsset: How to determine your retirement lifestyle

There’s a lot to consider when it comes to retirement planning, starting with what kind of lifestyle you’d like to enjoy. For some retirees, it involves travel. For others, it can mean moving to a new location to be closer to family, going back to school or simply devoting more time to hobbies and recreation. Creating a vision for your retirement lifestyle starts with understanding what factors can affect your ability to reach your goals. We’ll discuss how you can get started.

Consider talking to a financial advisor about the best way to plan for retirement.

Deciding what kind of lifestyle you want to pursue in retirement can come down to two things: Asking the right questions and crunching the numbers.

In other words, it’s a matter of figuring out how you want to live and how you’ll pay for it. Asking some key questions can help you get closer to an answer.

Is there anything you want to do more of in retirement that you don’t have time for now?
Are there things that you’d like to do less of?
How important is travel to you? Are you interested in traveling occasionally, not at all or going full nomad?
What are you spending money on now that you’ll continue to spend money on in retirement?
What expenses will you cut out, if any?
Are there any new expenses you anticipate in retirement? For example, do you expect to pay more for healthcare?
Do you plan to live in the same place or is moving in the cards?

Those kinds of questions can help you get a better idea of the way that you want to live. Once you know what you want your retirement lifestyle to look like, you can move on to the next part, which is figuring out how you can afford it.

Planning for Your Dream Retirement Lifestyle

The simplest rule of thumb for retirement planning is to just get started. Time is on your side. And the sooner you begin saving and investing, the more time your money has to grow through compounding.

With that being said, knowing what kind of lifestyle you’re saving for can make it easier to focus your efforts on areas that are likely to produce the best results. Using a retirement savings calculator to estimate how much you’ll need to save each month is a good place to start.

From there, you can follow some of the tried-and-true rules for retirement planning, including:

Contributing enough to your 401(k) to get the full employer match and maxing out annual contributions if possible.
Supplementing your workplace plan with a traditional or Roth IRA.
Funding a Health Savings Account if you have the option. And it can provide you with money for health care spending later.
Opening a taxable brokerage account and using it to make tax-efficient investments.

Talking to your financial advisor can make it easier to create a comprehensive plan for funding your ideal retirement lifestyle. Your advisor can help you formulate a strategy for saving and investing that’s tailored to your situation.

Retirement Lifestyles: What Are the Options?

Everyone’s idea of what an ideal retirement means is different. How you choose to spend your retirement is up to you and it might not look the same as what your neighbors or colleagues settle on.

The way you anticipate spending money can influence what kind of retirement lifestyle you have. Here are some of the different directions spending can take in retirement.

Travel

For some retirees, travel is at the top of their bucket list. A large part of their spending may be focused on taking trips abroad or sightseeing in their home country.

Healthcare

Retirees who are dealing with chronic health conditions may spend more of their budgets on things like prescription drugs, doctor visits, healthcare equipment or other out-of-pocket costs not covered by insurance or Medicare. For some retirees, travel is

Home Improvements

If you prefer to stay closer to home in retirement, you might dedicate more of your spending to home repairs or improvements. Or you might purchase a second home to use as a vacation spot.

Hobbies and Recreation

Retirement can be a perfect opportunity to explore new hobbies (or old ones you’ve forgotten) and spend more time doing recreational activities. In that scenario, you might spend more on supplies or equipment to support your hobbies or recreational activities and entertainment.

Special Needs or Permanent Disability

If you have a child with special needs or a permanent disability, then it’s natural to incorporate planning for their long-term care and needs into your retirement strategy. At some point, you may need to hand their day-to-day care over to someone else if you’re unable to manage it as you age.

And you may want to ensure that they continue to be supported financially after you’re gone.

On the other hand, you may decide that you want to help your grandchild pay for college or provide funds to one of your adult children so they can buy a home. In that case, you’d need to think about how your desire to help weighs in the balance against your own retirement planning needs.

How Much Money Do You Need to Retire?

There is no single answer to the question of how much money you need to retire for one very simple reason. Everyone’s retirement picture is different.

For some people, $500,000 may be enough to retire. But if you’d like to travel full-time or you have a serious health issue, then you might need $2 million to avoid running out of money.

A longstanding recommendation has been to aim for $1 million in retirement savings. However, you have to consider whether $1 million is enough for retirement based on:

What age you plan to retire
How long you expect to live
How much you’ll draw from Social Security
What kind of lifestyle you plan to live

Inflation and taxes also factor in. When inflation causes prices to rise, that can shrink your purchasing power. If inflation remains high over a longer period of time, then your retirement savings may not go as far, especially if you’ve shifted into more conservative investments since you’re no longer working.

Taxes can also take a bite if you’re in a higher tax bracket in retirement. Saving money in a Roth IRA can help you minimize taxes to a certain extent since qualified withdrawals are tax-free. However, if you’ve saved only in a traditional IRA or 401(k), then your withdrawals are taxed as income when you take them. And at 73, you’ll need to begin taking required minimum distributions to avoid a tax penalty.

Bottom Line

Planning for retirement is an ongoing process and the sooner you get started, the better. Giving some thought to the kind of lifestyle you’d like to have can help you create a realistic framework for saving so that there’s less risk of falling short of your goals.

Tips for Post-Retirement Activities

Consider talking to a financial advisor about budgeting for post-retirement activities to help you find the right financial plan for you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re unsure of how much you can prudently spend on activities without jeopardizing your financial security in retirement, this calculator will be helpful.