#257 - The Bare Necessities: Tallying the Cost of Your Needs in Retirement

2019-01-24

Over the past few episodes we have been counting the costs of your wants and wishes in retirement and on this episode, we get down to basics. What are your needs? You may think that defining your needs is the easy part: food, water, shelter, clothing, and healthcare, right? Well, it’s actually a bit more complicated than that. As a matter of fact, defining your needs can be much more complicated than coming up with your wants and wishes. Everyone has different needs in their life. What one may consider a need, someone e...

How do you decide what your needs are?

Defining your needs is not as easy as it seems. To define your needs you have to consider what the deal breakers are. What can you really not live without? Everyone has different needs. For example, consider a golf club. Many would consider a golf club membership a want or wish, but for others, this is their primary social outlet. For these people, a golf club membership is a need. On one hand you need to be practical and consider what you truly need, but on the other hand, you don’t want to build a cage around yourself. Complicating your needs can actually lead to a very sad life so think carefully about what is important for you to live a happy life.

Why do we break things down this way?

You may be thinking, why do I need to define my needs, wants, and wishes? You may think that moving through these exercises is a waste of time. But defining these categories is a way to help when you come to a crossroads. When it is time to dial things down as you take away income sources, or maybe when the markets are performing well and you have a bit extra you can examine these categories and decide how to negotiate with yourself. Having everything broken down into categories allows you to consider more choices. Defining your needs, wants, and wishes is an important first step to rock retirement.

What is your baseline?

To consider what your needs are you have to think about your baseline. There are 2 ways to determine your baseline. You can look at it from a top-down perspective. To do this, take your income and subtract your savings. This equals your consumption. You can also come at it from a bottom-up point of view. With the bottom-up way determine what your costs will be for healthcare, housing, taxes, utilities, food, transportation, and basic fun. You can either jot these costs down on paper or make a spreadsheet. Having an idea of what your baseline costs will be can really help you gain perspective on how you will rock retirement.

What are the average costs of basic needs in retirement?

The costs of basic needs change quite a bit from state to state and from lifestyle to lifestyle. The costs of taxes also vary greatly between the states. Some states are trying to become more baby-boomer friendly to attract retirees. These states have low taxes on things like pensions and property. Here’s the breakdown of average costs in other categories:

Housing: $1322/month

Transportation: $550/month

Healthcare: $500/month

Food: $500/month

Entertainment $200/month

Whether you use a top-down approach or a bottom-up method, begin to calculate the costs of what your basic needs will be in retirement. Don’t worry about getting it perfect, costs will change over time. Counting the costs is an important step in learning how to rock retirement.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN HOT TOPIC SEGMENT