Important Documents and Final Wishes

Estimating retirement expenses

One of the most crucial financial planning steps is accurately estimating retirement expenses. Correctly accounting for retirement living expenses is critical to ensuring that retirees do not outlive their money. For those already retired, there are usually few good options for creating new income sources later in life. Getting retirement spending projections correct is both an art and a science. To deal effectively in planning for future retirement needs, a financial professional can help determine the best course of action.

Early in her teaching career, Sheila started working with a financial advisor who helped her plan ahead for a comfortable retirement. She learned that when accounting for inflation, her teacher’s pension wouldn’t be sufficient to meet her retirement lifestyle desires. Approximate twelve years into her retirement, her expected pension income would begin to fall short of her anticipated spending needs. Because of this new information, she immediately began saving extra money each year and investing in a diversified portfolio. As a result of consistent and careful investing, Sheila is now living her dreams in retirement.

In planning for retirement expenses, the first step is defining the full scope of future living costs. Some expenses are obvious: rent or mortgage costs, food, utilities and all the other basic types of household expenses. Other expenses are harder to identify. The list should also include extra costs for travel, gifts and perhaps helping grandchildren with education expenses. There also needs to be a plan to deal with possible health care issues encountered during retirement.

The biggest question mark for the vast majority of Canadian retirees will be their health care expenses. With provincial health care plans only providing basic coverage, the available services may not equal the level of care expected or desired. Also, with long term care options, many retirees prefer to live at home for as long as possible. If full-time care is needed, the monthly costs can become quite burdensome.

The single largest factor in future spending projections is the effect of inflation during the remainder of a person’s life. Most people understand that prices tend to gradually rise over time, but they are often quite shocked at how it can effect their future income needs. If living costs rise about 3% per year, the costs of most goods would double in 20 years. The greatest difficulty lies with the fact that the cost of some goods and services, like health care, may increase at a faster rate than inflation.

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