Calculate your dream retirement cost

Does retirement seem like an unattainable goal?  How do you figure out what you need?  Quick answer:  To calculate your dream retirement cost, you must use your current budget and add your wish list items. It sounds simple, right?  This article will provide guidelines to help you determine if you can afford the retirement of your dreams.

In the last article in this series, What does your retirement dream look like? you identified the things you would like to do once you retire.  Calculating your dream retirement cost is the tedious part of the process – the part I’ve always hated, and maybe you have, too.  But first, it’s time to talk about the “B” word – budget.

First Step – a Budget

Do you currently have a budget?  You probably know exactly what your income is – what you bring home each month.  Am I right?  But, do you know what your monthly expenses are?  How much do you spend each month on housing costs?  Food?  Transportation?  Health insurance?  Miscellaneous?

The bad news is . . . if you don’t already have a budget, you need one.  You can’t figure out where you’re going if you don’t know where you are.  In the same way, you can’t know what your retirement budget should be if you don’t know what you really spend now.  I know, not what you want to hear, is it?

Are you looking for a quick answer?  Retirement planning takes more thought than that.  We’re talking about planning for the next 20, 30 or 40 years.  Do you really want to shortcut this?

If you have a budget already, you can skip to the next section.  If you don’t, please download the budget template.  (Coming soon.)  Use your checkbook or a financial application (like Quicken), if you use one, to get the figures you need to complete the budget.  You don’t even have to do a lot of detail.  You can roll up all hour housing costs into one bucket if you like.  But make sure if you do, you account for your mortgage or rent, utilities, phone, cable, insurance, etc.  In reality, if you’re willing to take the time, more detail is better since it’s easier to determine what you will or will not need in a category once you retire.

Calculate your dream retirement – how much do you need?

Old school process

It would be so much easier if we could just plug in a few figures, do one calculation and immediately know what we will need for retirement.  Several years ago, financial advisors said all you needed was 80% of your current budget when you retire.  Their assumptions were based on three things:

• When you retire, you will continue to live in your current house and it is completely paid off.
• You will lead a fairly sedentary lifestyle (i.e. no traveling to Europe)
• Your tax rate would be lower since you are only bringing in 80% of your original budget.

But that may not be the retirement you want.  If your dream retirement list contains more items than an eight-year old’s Christmas list, you should probably NOT use the Old-School process.

Current process

Financial planners are throwing out the old retirement calculation process.   The assumptions I listed above don’t hold true for many of today’s retirees who want to have it all.

• Your house may not be paid off; you may be planning to sell it and move.
• You have a long bucket list of things to do when you retire
• Your tax rate isn’t going to be lower because you’ve planned and saved for your retirement and your income is going to be at least the same as it is now.

If this describes you, then you are in the right place.  If you’re not sure how you are going to retire since you have no retirement savings, I’ll be providing another article in the future and will link it here.

The next article in this series discusses HOW to finance your retirement.  There will be some ideas to consider if you’re strapped for money.

Put a price tag on your wish list

In the following sections, I provided some information about pricing – in general what you can expect to pay.  The lists are based on the wish list from the previous article, “What does your dream retirement look like?” just to give you a starting point, and a general idea of costs. To get information about your specific wish list, you should be prepared to make a few phone calls or go to web sites to get the “real” costs for your dreams.

Cruising – $$$$

Take a cruise – or two or three.  If you haven’t taken any cruises, you will need to call a travel agent or log in to one of the cruise line sites and do the research.  We’ve found that it costs about $2000 per person once you add in shore excursions.  This is the case even though the cruise lines advertise the second person in a stateroom is half price.

Traveling Overseas – $$$$

Explore Europe.  You should contact a travel agent for this information.  I haven’t explored Europe . . . yet.  There are books that advertise getting around Europe on $10 a day.  Be aware that some of those books are very old.  Also be conscious of the type of accommodations you can expect at $10 per day.  A hostel (an establishment that provides inexpensive food and lodging for a specific group of people, like travelers) is a far cry from a 4- or 5-star hotel.  If you’ve never “roughed it,” your tastes for luxury and food will likely trump the desire to save money.  My suggestion would be:

• Contact your travel agent if you have one.  If not, let me know . . . I may have a name or two I can provide.
• Go to your local library or to Amazon.com to find books about the country/countries you would like to visit and see if they have resources you can order.
• Do your research on where you would like to stay – the type of hotel, any special places you would like to visit.
• Consider transportation costs to get to your location, both airline flights and local transportation once you arrive.
• Don’t forget food and souvenirs in your budget for the trip.
• And . . . if you find all of this research too tedious, contact a reputable travel agency.

Traveling in the U.S. – price varies

Visit every national park in the U.S.  This can be less expensive than you think.  The majority of National Parks are free (only 118 of 417 parks charge an admission).  But, the lifetime Senior Pass (available to anyone 62 or older) costs $80 and allows you free entrance to all national parks.  There is also an annual Senior Pass available for $20 for those on a fixed income.  In those parks that charge admission, your pass can save you a lot of money.    For example, it used to be free to drive through the Rocky Mountain National Park.  Now it costs $20 per car for a one-day pass to drive through the park.  Savings win!

Play golf in every state in the Union.  You’re on your own, here.  Contact each of the courses you wish to play to determine the cost.  We have found that course fees range from $40 to $400 or more, depending on the course, it’s popularity and availability.  Sometimes talking with an individual at the course will get you some extra perks.  Just remember, golf isn’t cheap.  And . . . you must decide take or rent – your clubs, of course.

Visit friends across the nation.  Whether you travel by car, bus, train or airplane, visiting with friends is priceless.  Take the time to rekindle friendships.  Pull out the memories.  Laugh, cry, dance and sing.

Learn new skills – $ to $$

Learn to play tennis.  Contact your local tennis clubs and inquire about prices for lessons.  Another option is to find an old friend who plays and just go play.  Unless you plan to enter tournaments and someday play at Wimbledon, lessons may not be required.  The biggest expenditure may be getting your old racket restrung or more likely – purchasing a new one.

Get in shape.  Studies show that getting in shape – at any age – is beneficial.  You’ve said you would do it for the last 40 years.  If you want to be strong and healthy in your golden years, I suggest you start today.  It doesn’t take much.  Don’t try to get your 20-year old body back in one week.  Be kind to yourself.  Just walk around the block if you haven’t been active.  That’s several steps more than you did yesterday.  Every journey starts with one step.

Train to run a marathon.  I know you’ve always wanted to run a marathon, right?  If a marathon is not in your future, you could train for a half marathon.  Okay, let’s be real – maybe a 5K is all you ever want to do.  There are several apps you can download on your phone which will help you train to run a 5K, half-marathon, or even a marathon.  Most of the apps are free, but running the races usually aren’t.

Family – $ to $$$

Write a book – perhaps your memoir.  There are many writers’ clubs available who welcome anyone serious about writing.  You can get tips, critiques on your writing, and lists of good books to read.  You’ll meet great people who are passionate about their craft.  I highly recommend having someone critique or at least proofread your book, though, before you try to have it published.  True, it may be just for the family to read, but it will definitely be a more pleasant read if you’ve taken the time to do your best.

Spend time with your grandchildren.  Now, this one is potentially free, depending on the grandchild, of course.  More time for the zoo, the park, the pool, wherever you want, since you’re retired.  Whatever you spend, though, consider the time with your grandchildren priceless.  Make memories.

Set up college funds for your grandchildren.  This is a major part of your planning – where you will spend your funds to make the most difference for those who come along behind you.  Whether it’s a trust fund for your grandchildren or leaving money to your favorite charity, you can change lives with your thoughtful giving.  I suggest consulting with an attorney to make sure everything is in order.

Take the family to Disney World or Disney Land.  For this one, you will need to save some money.  But, there are ways to make it less expensive.  Watch for packages, check with your travel agent, drive instead of fly.

Volunteering / Continuing Education

Volunteer.  I don’t think you need much help here.  You can volunteer at so many places – your church, a soup kitchen, a library.  The list is endless, and most nonprofits are always looking for someone to help out.  Go find someplace that needs you.

Go back to school and finish a degree or earn a new one.  You have many years ahead of you.  If you retire at age 65, most of us will live another 20 years or so.  What can you do in those 20 years?

Take continuing education classes.  Many community colleges offer continuing education classes, sometimes free, sometimes at a small cost.  What have you always wanted to learn?  Photography?  A foreign language?  Brush up on your computer skills.  Learn.  It keeps the mind young.

Teach a class.  You have skills and you know things.  Did you get to this age without learning?  No.  There are people who need to learn those same skills.  What about cooking?  How many young people know how to cook?  Look at a list of classes that are offered at the community college.  Could you teach some of them?  Are there some missing that you could teach?  No cost to you.

Start a new career.  Whether it’s because you need additional income or just because you want to do something different with your life . . . start something new.  Start a new career.  You know what it is.  Go for it!

Hobbies – $ to $$

Think about your hobbies.  What did you long to do when your children were younger but never had the time to do?  These are just brainstorming ideas based on things we thought about doing when we were younger.  Your list is going to look so different from ours.  Determine if there is a cost associated with learning this hobby before pursuing it.

• Sewing
• DIY projects
• Restoring antique cars
• Restoring furniture
• Reading books
• Gardening

Add a dose of common sense

One thing to remember – you probably won’t do all the things on your wish list in the first year you retire.  For example, you may plan to take three different cruises, but you don’t have to bust the budget by adding all three into one year.  For goodness sake . . . spread them out.

The same goes for most of the items on your wish list.  Prioritize the list; figure out what you want to do each year.

More on this in the next article in this series.

Where will you live? – $$ – $$$

Okay, so we’ve covered some of the “fun” stuff, but there’s still more to think about when planning your dream retirement.  Where would you like to live?  This is a big consideration.  In fact, it’s so big, I’m putting all the details for the following into a separate article.

• In the home you are in now
• At your lake place
• In a warmer climate
• On the beach
• On a golf course
• In another country

Please check out the companion article, Where Will You Live?

Other items – cars and health – $$ – $$$

What type of car(s) will you drive?  Will you need to buy a new car?  Add in the car payment and the insurance for a new car.  How much do tags cost each year?  If you are moving to another state or country, what are the fees, transportation costs for getting the car to the new location and getting it titled there?

What will your health be like?  Are you in good health now?  Do you anticipate that changing in the near future?  (You may need a crystal ball for that one.)  Do you have good insurance?  Are there good medical facilities where you intend to retire?

Next Steps

After you have your wish list priced, add those amounts to your current budget.  You did complete a budget, didn’t you?

The next step on this journey is determining how you will pay for your dream retirement.

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Have you taken the time to plan the things you would like to do when you retire?  Were there any surprises?  Leave and comment below.

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