Part 3: Looking at Future Expenses

Your next step is to look at your spending patterns in retirement and future inflation.  You will have to save enough money to deal with both situations.  You must look at your present expenses to see how they will change over time. You must project what inflation will be at the time you plan to retire, say in 10 years. Plus you must figure out how inflation will act over the next 30 years. Your savings and investment rate must at least match that figure.  You must figure out if the money you saved will be enough to last until you die.

 

You can’t control inflation over a period of time but you can control your spending.  Your expenses will change as you grow older.  When you retire, you will spend less on work related things like daily transportation and work clothing. You will spend more on traveling, hobbies, or other things that you always wanted to do.

As you age, more of your budget will go toward medical expenses. I just heard recently that medical expenses are increasing by 4% per year.  Retired people may find that recording their expenses will alter future spending patterns.

Write down your monthly expenses that you have today. You may want to use a spread sheet on your computer.  Avoid getting stuck on the details and giving up because you don’t have exact records of your spending. If you don’t know the exact amount you pay for car insurance, for example, use a guesstimate until you can look it up. You can always revise your data. Don’t include things like college tuition or other onetime cost.  For things like utility spending, take a yearly figure then divide by 12 to give you an average monthly figure. You must do the same analysis on anyone that is dependent on you such as your spouse.         

Inflation in its simplest terms means that dollar for dollar your money will not buy as much next year. This means that inflation is a major factor in determining how much money you will need in retirement. Inflation means that you will need more money every year because prices for goods and services go up every year.  So if your money is not earning more money than the rate of inflation, you will lose part of your retirement future buying power.

Because we are starting to recover from the first Great Depression of this 21^st Century, I would say that inflation will average about 3.5% over the next 10 years. From 10 to 30 year in my opinion it will be 6% inflation.  In the 1930s, we lived with deflation where prices fell and goods and services became cheaper.  In 1980, inflation ran at as high as 13.5%. In 2002, inflation was only 1.6%. So as you can see, inflation can vary widely.

I would project your inflation cost for medical expenses at 4% per year. You should project that 20% of income will be spent on health care.  Medicare does not cover all your expenses in retirement.  For example, Medicare Part B (Doctor Bills) today cost $96 per month.    You still have to pay for dental, prescription drug, and eye care.

If you are thinking about retiring early, you may pay for your total health care yourself or in conjunction with an insurance plan.

If you need help in figuring out your future financial needs, talk to a Certified Financial Planner.  The Certified Financial Planner Board of Standards Web site lets you look up a certified financial planner near you. The organization also distributes a free “Financial Planning Resource Kit.” 1-888-237-6275

www.cfp.net/learn

The National Association of Personal Financial Advisors is an organization of fee only comprehensive financial professionals. 1-800-366-2732.

www.napfa.org

A Special Note for all my reader’s around the world!  

Hi my loyal readers around the world. I just finished making my final plans of my life. I will be retiring in a few short years and moving into my luxury retirement home. I will spend most of my time getting my seven year old grandson ready for the 2028 Olympics. I have no idea what my younger grandson is going to do. As of now, I would say it has something to do with electrical engineering because at 1 years old, he knew how to operate an IPad. But whatever it is, I will be around to lend assistance to his education.


My plans also involves my readers. I am starting an online stock club design to give my loyal readers as much as one million dollars, maybe more depending on when you start my plans. That money will be to remember me by.


Please read the blog below and follow my instructions if you want a chance to get one million dollars.

http://bondinvestments.blogspot.com/2012/06/how-would-you-like-to-have-over-one.html

The younger you are; 35 and below, the greater the chance of getting over one million dollars. If you are starting at 60 years old, chances are you will only make it to $100,000.



I started out at age 23 and spent a lot of time laid off and giving money away to my children for cars. I bought 3 homes. One home was paid off in full. The other I bought in a partnership paid in cash. All my cars since 1971 were the current year and I have not had a car note since 1983. I even gave two girlfriends a car each. That is why I don’t have a million dollars today. But if you become one of my “Greedy Friends” I am sure with my instructions, you can get that million.