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Retirement Spending
Before you retired, you likely created a retirement savings plan to help you identify and reach your financial and lifestyle goals during retirement. Ideally this was done long before you retired and included a retirement spending plan that accounts for your goals and spans your investment time horizon.
If you’re currently retired and don’t have a retirement spending plan, don’t worry—it’s not too late to start. Whether you just retired and are forming a plan, or you’re long retired and reassessing your existing plan, we’ll address some essential retirement spending considerations to help you along.
Ideally this was done long before you retired and included a retirement spending plan that accounts for your goals and spans your investment time horizon. You may want or need assistance from a trusted financial adviser to help you achieve your retirement goals.
Two Forms of Retirement Spending
Retirement spending falls into two categories: non-discretionary spending and discretionary spending.
Simply put, non-discretionary spending is for needs while discretionary spending is for desires.
For retirees, it’s essential to have a clear understanding of your spending in each category so you can help ensure your money will last throughout your entire retirement. It’s possible you may need to make some adjustments if expectations don’t match reality so you avoid running out of money during retirement.
Here we explore potential retirement costs, starting with non-discretionary expenses.
Non-Discretionary Spending
Certain expenditures are essential to daily living and hence unavoidable. You encountered these costs before retirement and continue to encounter them as a retiree, although they may be a bit different.
Non-discretionary expenses include living expenses, debt, taxes, insurance and healthcare. Because non-discretionary expenses are mostly predictable, planning for these costs is a good start and can help determine your discretionary spending budget.
Read on to learn more about the most common non-discretionary expense types.
Let’s now consider common discretionary expenditures during retirement.
Discretionary Spending
Discretionary expenses are deemed nonessential and include smaller costs like a cable TV subscription to larger costs such as a vacation home or leaving a legacy to your family or charity. These expenses may not be considered essential to living daily life, but they’re significant when it comes to enjoying your retirement.
Discretionary spending may change over time, and maintaining control over these expenses is important to fulfill your retirement goals. Depending on your non-discretionary spending, you may need to make adjustments to your discretionary spending as in theory you have more flexibility with those expenses.
Let’s review some common forms of discretionary spending.
Inflation and Time Horizon
Your retirement spending and saving are impacted by inflation and your investment time horizon, so it’s important give heavy weighting to these considerations when you’re planning.
Do You Need Help with Your Retirement Planning?
Retirement planning requires a holistic view of your anticipated spending needs and financial goals. Weighing all the aspects of retirement planning, saving and spending is not always easy. You may want or need assistance from a trusted financial adviser to help you achieve your retirement goals.
Fisher Investments may be able to help. Contact us today to learn more about planning for your retirement spending.
1Source: FactSet, as of 01/09/2018. Consumer Price Index data from 12/31/1990-12/31/2017.
