A few years back at a neighborhood party, our host hired a palm reader as entertainment. The reader took one look at my palm and said, “Wow! You’re going to live forever.”
My response was, “Oh great, more bad news.”
I was only half kidding.
On both sides of my family, just about everyone made it to their late 80s and many made it well into their 90s.
Considering how they took care of themselves, they had no right to expect that kind of longevity. They weren’t exactly health nuts. (That’s a story for another day.)
How long we will live and—more importantly—how we’ll pay for it are the biggest concerns of people our age. And it all starts with guessing—at best, it’s a guess—about how much we can spend in retirement.
The pressure to get this one right is ratcheted up by the fact that if we get it wrong, most of us have no way to replace the cash.
Since we now have seven days a week to play—not just weekends and a few weeks of vacation a year—most new retirees guess wrong about how much they expect to spend on entertainment.
How does $5,832 per year feel?
If you’re getting the average Social Security check of $1,404 per month, about a third of your annual income of your safety net is going toward entertainment.
(Obviously, if you’re getting by on just Social Security, you’re likely spending less than the average.)
By age 80, entertainment costs drop to about $2,232 annually.
But then our health care costs—often underestimated and backloaded to our late years—start to post.
The $7,000 average annual cost of health care doesn’t come into play until later in life… and doesn’t include long-term care.
Remember, $7,000 is an average annual amount stretched over 20 to 30 years. The real amount will be staggering.
No matter how we look at this retirement-spending scenario, it seems we can’t win. But the solutions are always the same…
- Set up a realistic budget and stick to it.
- Carry as little debt into retirement as possible and pay off high-cost debt first.
- Don’t live like a pauper—but control your impulse spending.
- Avoid cosigning for any debt. Yes, that includes your grandkids’ student loans. (That one is crushing a lot of retirements.)
- Save as much as you can while you still can.
- Try to have at least one year’s expenses in emergency cash.
Retirement will be so much better if we plan and execute accurately. Knowing how much we would like to—and have to—spend should be the place to start.