There’s one common factor that many people forget to consider when planning for the future that leaves them suffering from retirement FOMO (Fear Of Missing Out).
As retirement approaches, it’s important to seriously consider your post-retirement lifestyle. Your financial situation is one important factor to consider when choosing where you want to plant your flag for your Golden Years.
For example, retirement for many can mean moving to a comfort retirement community through either purchasing or renting a residence.
Your projected income and health status may help you decide whether to keep your current residence, move to a comfortable retirement community, take an urban apartment or condo, or relocate to a full-service Continuing Care Retirement Community (CCRC). Perhaps you’d like to live in a golf-course community or on a houseboat. Whatever appeals to you, make sure you understand how much it’s likely to cost.
Your anticipated expenses in retirement will depend on where you plan to live and what you plan to do. It’s easy to underestimate how easy it can be to spend money in retirement. It can be difficult to live within your budget, even if you have plenty of assets.
The real test comes when you try living on your retirement budget for two or three months. If you plan to relocate, you should simulate your new housing payments – rent, mortgage, property tax, country club and/or community fees, marina fees, etc., especially if they will increase after retirement.
Live Where You Plan to Retire
Where – and how – you plan to spend your Golden Years will have a big impact on your budget. There can be new association fees, a higher cost of living and other costs you will want to consider before jumping in 100 percent.
For example, a traditional retirement community offers different services and amenities. The nicer ones have golf, tennis, an athletic center and pool, horseback riding, sailing, hiking/biking, perhaps even an event center and bar/restaurant on premises. Not only will you have to factor in the cost for these conveniences, but will you rent or buy into a retirement community. Purchasing allows you to deduct mortgage interest, but you might have to pay capital gains tax on your old home if you downsize.
Then there are Continuing Care Retirement Communities, which provide graduated levels of care. The entrance fee to purchase a residence in a CCRC can range from $100,000 to $1 million. The money covers your purchase cost plus helps pay for the facility’s expenses and your lifetime care costs. In addition, you’ll pay a monthly charge that usually ranges from $1,500 to $5,000. You can reduce your entrance fee by renting rather than purchasing your residence.
On the other hand, a CCRC residence might provide a tax benefit. If you itemize your deductions, you might be able to deduct part of your entrance and monthly fees as prepaid medical expenses. The extent of the deduction hinges in part on the type of contract you sign with the CCRC, which includes lifecare, modified and fee-for-service contracts. You can deduct medical expenses in excess of 10 percent of your adjusted gross income. For many CCRC residences, entrance and monthly fees could easily exceed the 10 percent threshold.
Renting offers flexibility and less cash. If you can’t afford or don’t want to spend the entrance fee, renting in a CCRC can make a lot of financial sense. Much depends on your life expectancy. In the long-run, purchasing could be the less expensive option. But renting gives you the flexibility to change your mind. Also, by renting, you will not suffer a major financial impact if the CCRC goes bankrupt.
For other retired individuals and couples, living in a midtown apartment or downtown loft sounds like heaven. Because of the pandemic, many folks are moving from large cities and causing rents to drop. Downtown San Antonio is a popular choice for retirees for many reasons, from it’s history and culture to its affordable housing. Similar attractions await urban dwellers from coast to coast.
Bear in mind though that downtown living can also be expensive, so your budget will have to reflect the high costs of restaurants and entertainment. On the other hand, transportation costs may be lower, as many urban dwellers don’t even bother to own a car.
If city living sounds intriguing to you, consider taking fact-finding trips to your top candidate cities before you retire. When you find the right city, you’ll know it.
If you haven’t yet decided what living plan is best for you, this blog post may help: 5 Factors to Consider When Finding the Right-Sized Home for Your Retirement. Getting locked into the wrong situation can easily lead to retirement FOMO.
Live How You Want to Live in Retirement
Your budget will have to accommodate your retirement lifestyle. Do you plan to travel extensively or frequently entertain family and friends? Will you have expensive hobbies? Only you know how you want to live, and the years before retirement give you the opportunity to start sampling (and pricing) a new lifestyle.
Your financial advisor can help you fill any holes in your plans and address concerns before you take the leap. Whether it’s inflation, healthcare costs, budget gaps or other risks, the more you can plan in advance, the better your chances of living the retirement lifestyle you desire – and avoiding retirement FOMO!
Budgeting for Retirement
Once you decide your residence preferences, the next step should be to create a post-retirement budget and give it a test run for a few months. Social Security might not play that big a role in your lifestyle plans, but you should include it in your projected cash inflows. Add your income from your retirement accounts and your investment portfolio. Talk with your financial advisor about whether you want to liquidate some of your financial assets, like a second home or rental property.
Protecting Your Capital
In an ideal retirement, you should structure your wealth to preserve your capital while living on the income that your capital generates. Typically, this translates to a portfolio heavily weighted toward fixed-income investments, but with sufficient equity to keep up with inflation. Your fixed-income investments can provide you with part or all of the cash you need to fund your retirement lifestyle.
Retirement planning can be complex. Discuss your options with a financial advisor you trust.
If you’re not currently working with a financial advisor or are ready for a second opinion, contact PAX Financial Group to see how we can help. It’s important that your finances are working hard to make your retirement dreams a reality. No one wants to suffer from retirement FOMO.
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.
