Learn six essential strategies for optimizing your chances of living your ideal retirement lifestyle in today’s article.
In this article:
- Estimate Longevity
- The Need for Clear and Relevant Retirement Goals
- Set Retirement Goals
- Save First, Spend Second
- Start as Early as Possible
- In Case of Doubt, Consult With a Professional Financial Planner
Retirement Lifestyle Strategies: Retirement Planning for Living a Dream Retirement
1. Estimate Longevity
Longevity is a key factor you should consider when planning for a specific retirement lifestyle. It directly impacts the total amount of money you’ll need to live a certain way.
If a retiree underestimates how long he or she will live, funds may fall short towards the end of retirement. Between two errors, it’s better to err on the side of overestimating longevity since excess funds won’t cause problems.
While no one can perfectly predict how long they’ll live, people can make reasonable estimates. Some important pieces of information that can help estimate one’s longevity include:
- Parents’ age of death
- Medical histories of parents
- Personal medical history
- Current lifestyle
One can expect to live longer if there isn’t any family history of fatal conditions like cancer or cardiovascular diseases. Living a healthy lifestyle and managing stress well is also beneficial for longevity.
Another way to estimate one’s longevity is through the IRS’ life expectancy tables. These tables are available here.
2. The Need for Clear and Relevant Retirement Goals
You won’t be able to live your desired retirement lifestyle without clear and relevant goals.
For example, it’s not enough to say, “I want to travel around the world when I retire.” You also have to think about the logistics and planning needed to be able to do that.
Clear and relevant goals are also important because they provide feedback on whether a person’s on track before retiring. In this way, the retiree can have ample opportunities to make necessary adjustments as needed.
As mentioned earlier, retirement goals need to be clear and relevant.
- “Clear” means you have to put a price tag on the desired lifestyle.
- “Relevant” means that the amount needs to be conservative enough to maximize your chances of affording your desired lifestyle.
There are three things to consider when setting clear and relevant retirement goals:
- Living expenses, which include basic living expenses like rent, food, utilities, and medicines
- Wants, which include recreational expenses (going to the movies, eating out, etc.).
- Bucket list items, which may include travel plans and other big-ticket retirement goals (e.g. relocating to a different state or country).
3. Set Retirement Goals
To conservatively estimate retirement living needs, you must get your current monthly average living expenses for you and your spouse. Annualize it (multiply by 12) and compound it up to the retirement year using the average inflation rate.
What is Inflation? Inflation refers to the average annual rate of increase in general living expenses, as computed by government economic managers.
After determining the average annual living expenses on the first retirement year, estimate the same for each succeeding retirement year. This is where you’ll need your longevity estimate.
After you’ve compounded the average living expenses for each year of retirement, get their total. That’ll be the goal for retirement living expenses, which is the bare minimum you must have by retirement.
Next, set the “wants” and bucket list item goals by getting your current costs and compounding them to retirement, too. But for the bucket list items, it must only be compounded up to the year they’re expected to be fulfilled as these are non-recurring items, unlike living expenses and wants.
After setting retirement goals, add them to get a reasonable idea of how much money must be available by retirement. That will be a reasonable estimate of how much a desired retirement lifestyle will cost.
If you want to live a more lavish lifestyle, you’ll need to get a conservative estimate of how much your target lifestyle costs today. Using the long-term average inflation rate, compound the three expenses to retirement to know how much your preferred retirement lifestyle will cost.
Don’t forget to consider the impact of your spouse’s Social Security benefits when setting goals. It’s because once a spouse dies, the lower of the two Social Security benefits will cease.
4. Save First, Spend Second
Setting clear and relevant retirement goals is one thing, but accomplishing them is another. To reach these goals, you must consistently save money for retirement investing.
To do that, you must know how to budget your income. Here are two ways to budget for saving money:
- Spend first and whatever’s left goes to savings.
- Set aside savings first and whatever’s left, budget accordingly for expenses.
The second approach is better because, in most cases, taking a contingent approach to saving money doesn’t work. There will always be enough (or even more) expenses to take up one’s entire budget.
By setting aside a pre-determined percentage of income as savings first, saving money for retirement is guaranteed. This eliminates the risk of procrastinating on saving money and compels the person to strictly control his or her budget.
5. Start as Early as Possible
The later a person starts preparing for retirement, the more difficult it will become. Successfully investing and achieving a financial goal depends on three factors:
- Time — The longer the investment time or period, the higher the amount you’ll have at the end.
- Rates of return — The higher the rate, the higher the end amount.
- Investment amount — The more money invested, the higher the end amount.
The earlier a person starts saving and investing for retirement, one of two things can happen:
- Investing the same amount of money regularly will yield a bigger amount by retirement.
- That person will need a smaller investment amount to achieve a specific sum of money by retirement.
On the other hand, starting late will require bigger investment amounts to accomplish a specific retirement goal since there’s less time for investments to grow to the desired amount.
6. In Case of Doubt, Consult With a Professional Financial Planner
Most people consider financial planning as rocket science, especially those whose careers don’t require financial planning. However, they need to plan well for living their desired retirement lifestyle, too.
The good news is, you don’t need to master financial planning principles to do that. If you’re one of these people, you can opt to get the services of professional financial planners.
Living a desired retirement lifestyle requires good planning and execution. Implementing these six strategies will help anybody maximize their chances of living out their retirement well.
How are you preparing to live your ideal retirement lifestyle? Share your thoughts with us in the comments section below.