Before you buy any large item, such as a car, you typically want to take it for a test drive first. It is also true when you buy a house. Hopefully, you are also considering taking a serious look at retirement before you retire—which is even much more expensive than a car or a house.
No matter how well you think you understand what you will need in retirement, taking a test drive will let you see if your expectations are realistic. Most likely, since you have never retired before, you cannot be sure until you take a realistic test. You will likely find afterward that you need to make some changes to your retirement plans. It could be especially useful for those who want to retire early.
One thing that many people find almost unbearable after they have entered retirement is to discover that they have more time on their hands than they want. After a few trips (First Citizens says it is something that 60 percent of seniors want to do after retiring) and finishing some long-awaited projects, they no longer know what to do with themselves. It often leads many to take on a part-time job or volunteer somewhere. Of course, you cannot know what it is like until you find out for yourself.
Why a Test-Drive Is a Good Idea
Perhaps the biggest reason to take a test drive is to see if you can live on the finances you saved for retirement. After using a retirement calculator to understand how much income you think you will have in retirement, figure out how much you expect to spend each year—then divide it by 12 to see what your monthly budget will be.In your calculations, expect about a 3.2 inflation rate each year. Your Social Security will automatically receive a cost-of-living adjustment (COLA) to match the inflation rate of the year before. Keep in mind that CBS says that Social Security may need to cut its benefits by about 20 percent if Congress does not act by 2034.
Determine How Much You Will Have
Some surveys have found that many people and others have no idea how much they will need for a comfortable retirement because they do not know how long they will live. In the United States, MacroTrends says that the average lifespan is 79.25 years. Men live a little less than this, and women live a little longer. Of course, some people live much longer than this. In your calculations, be prepared to live at least 15 years after age 65.Multiple Ways to Take a Test Drive
There are several ways to take a test drive to find out if you are ready to retire. You are apt to find one method more suitable to your availability and proximity to actual retirement. Or there may be two methods you want to try—one now and another as you get closer to retiring.1. Live on Your Retirement Budget for a Month
Find out how comfortable you will be during retirement with your projected income by living for a month on that income. Most financial advisors suggest that your retirement savings should permit you to live on 80–90 percent of your current income.After living on that budget for a month, you discover that it is not enough, you need to find a way to increase your retirement savings. An alternative would be to push your anticipated retirement date back for a couple of years.
2. Stay at Home for at Least a Week
Instead of traveling anywhere, take a week or more off from work and spend time at home. Find out if you will get bored quickly and run out of interesting things to do. It will also enable you to discover if you like being alone (or with your spouse) watching TV, engaging in a new hobby, etc., all day for weeks, months, and years at a time. AARP mentions that spending more time with your spouse can prove to be a challenge because of increased strain—if you are not used to it.3. Check Out Your New Desired Location
If you plan on moving to a new location to retire, find some way to live there for a couple of weeks before you retire. Whether it is across the city or in a different country, it will let you discover if it is as comfortable and inexpensive as you hoped it would be. Do not make the mistake of waiting until you move to find out—you may be very disappointed.Preparing to Live on Less in Retirement
Before you retire, eliminate as much of your debt as possible. Pay off your mortgage, credit cards, car loans, and other debt—especially those with high interest rates. It will enable you to reduce your financial needs in retirement and let you have more money each month.Downsizing is also an option to enable you to live on less. You can get a smaller house where you live or move to a cheaper state. It may be cheaper to live elsewhere, or you may want to live closer to family and relatives. Some states have less taxes and will not tax retirement income.
Reduce Future Taxes Now
You may also want to put some of your retirement money into a Roth account—a Roth IRA or a Roth 401(k). Money rolled over into these accounts is after tax, so you must pay taxes on any money put into those accounts. The advantage of doing this is that it will help reduce your taxes later when you must take the required minimum distributions (RMDs).
Taking a test drive can save you time and money if you discover you need to delay your retirement. Many seniors are putting off retiring for a couple of years after turning 65. More people than ever are thinking they will not retire at all.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
