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A comfortable retirement doesn’t necessarily just come down to how much money you have saved up. Your lifestyle plays a major factor.
A $1 million nest egg is enough for some people, while others aim to save closer to $5 million. Living a comfortable retirement comes down to your ability to reliably cover monthly bills with Social Security, portfolio withdrawals and other income sources. Considering these monthly bills can help.
The bills you can’t skip: housing and health care
Mapping out how much you need for a comfortable retirement starts with your biggest, unskippable bills. Homeownership still has costs even after you have paid off the mortgage, including property taxes, homeowners insurance, utilities and applicable homeowners association (HOA) fees. You also have to be prepared for repairs and maintenance costs.
Writing down all of your housing expenses can help you determine how much money you need. It can also inspire you to seek alternatives to your current lifestyle, such as downsizing, relocating or selling your home and renting. Lowering your expenses makes it easier to live a comfortable retirement, especially if you focus on housing costs.
Regardless of where you live, health care costs will also add up. While Medicare offers some coverage, you will have to factor in premiums, prescriptions, dental, vision and other costs. A Fidelity report estimates that a 65-year-old who retired last year can end up spending $172,500 on health care and medical expenses throughout retirement.
Everyday costs: food and transportation
The next two bills address everyday costs. All food-related purchases, including groceries, dining out and delivery, count as one category. Your habits — such as if you cook or dine out — and location influence how much you spend on food.
Transportation is another essential cost that includes car payments, insurance, gas, maintenance, rideshares, public transit and other methods of travel. You may only need one car instead of two if you and your spouse are both retired.
Debt, taxes and insurance obligations
Debt, taxes, and insurance obligations can take up a large portion of your budget. Factoring these into your financial planning can prevent unpleasant surprises and ensure a comfortable retirement instead of a rude awakening.
Any credit card debt, loans, mortgages and other debt will compete with basic living costs. It’s optimal to pay off this debt as quickly as possible — even if that means picking up a part-time job or cutting back significantly on spending. While Social Security can help, don’t forget that it’s eligible for taxation. Pension income and withdrawals from traditional retirement plans are also taxable.
Long-term care is a cost that’s often forgotten, especially early in retirement. But it can become a large line item down the road. Getting a long-term care insurance policy can reduce your costs if you end up needing long-term care, but you will have monthly premiums chipping away at your budget.
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