Why You Need To Test Out Your Retirement Plan — Decades Before You Retire
Written by
G. Brian Davis
Edited by
Daria Uhlig
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Ever imagine what a vacation destination would look or feel like, only to be surprised once you got there?
Reality often looks different than what you imagine in your mind — sometimes dramatically so. That’s why Sharon Epperson, CNBC senior personal finance correspondent, recommended in a recent interview on NBC’s “Today” that as you plan your retirement, it’s a good idea to test drive it to make sure it’s actually what you want.
And just as importantly, make sure it will cost what you expect.
Write Out Your Retirement Lifestyle Plan
Get specific as you write out exactly what your day-to-day life will look like in retirement. That starts with answering questions around who, what and where, Epperson said.
Where do you plan to live in retirement? Does it involve much travel? Do you plan to split your time between locations? Can you age in place there, or will you have to transition at some point?
What do you plan to do to stay fulfilled, engaged and entertained in retirement? How might that shift over time, as your health and fitness change? What does a typical day look like?
Finally, who do you plan to live this retirement lifestyle with? Do they share your vision?
Write out your lifestyle vision in vivid detail, and get as granular as you can on day-to-day routines and activities.
Test Drive Your Retirement Vision
Epperson recommended taking time off work to go live your dream retirement lifestyle.
Book a vacation rental in the exact area you want to live, and choose a similar type of home you’d occupy. Mimic your future living arrangements as much as possible.
Do the day-to-day hobbies and activities you plan to do in retirement. Explore the area. Eat the local food. Shop for groceries at the local markets. Try out a few neighborhood restaurants and cafes. Visit the local library.
Most important of all, go with whoever you plan to share your retirement with, so everyone can test drive the lifestyle together. If you love the lifestyle but your spouse hates it, your vision needs to keep evolving.
Create an Informed Budget
Cost of living numbers on sites like Numbeo can give you a general sense of how much it costs to live in a particular place, but it’s important to understand the costs of the specific retirement lifestyle you’re test driving, Epperson said.
What does housing cost? What about transportation? Utilities? How would your grocery bill compare to your current city? Do local restaurants and cafes cost more or less? How much do your planned hobbies and entertainment cost?
Project your expenses for retirement based on firsthand experiences of living there. Use the projection to create your retirement budget.
To do that, personal finance expert, author and media host Dave Ramsey recommends first calculating your income, including retirement accounts, investments, Social Security, pensions and earnings from any work you do in retirement.
Next, subtract your projected expenses, and create categories of spending or saving for any money left over. The idea is to account for every penny of income. This budgeting method is Ramsey’s zero-based budgeting, and as the Ramsey Solutions blog noted, you might have to experiment a little to get it right.
Epperson recommended one final step for planning your retirement budget: See if you can stick with it. Test driving your budget now could eliminate unpleasant surprises later, when they’ll be more difficult to overcome.
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