The basic concept is really pretty simple: keep annual expenses below the planned withdrawal rate of your assets. As usual, it’s the details that can get a little tricky.
On the expense side, if you don’t currently track them, you’ll need to estimate them for the first year. You can then track your first-year expenses and have a more accurate expense plan for subsequent years. Many people have the following kinds of expenses: house payment, groceries, clothing, auto payment and expenses, taxes, utilities, travel, gifts, charitable contributions, medical expenses, insurance and so forth. It’s often helpful to group these expenses into one of two categories: fixed and discretionary. Then, when income varies, you can more easily think about the controllable or discretionary expenses. We have a worksheet on our website that can help you estimate your expenses.
Even if you have a pretty good handle on today’s expenses, what might they be 20, or 30 or even 40 years from now? A number of important expenses can vary over time. For example, it’s common for travel expenses to increase in the earlier retirement years and for medical costs to increase in the later retirement years. Another change that’s certain is inflation. Think about the price of a car 30 years ago compared to today! Most financial planners use an inflation estimate of about 3.0%. With this assumption, if you need $100,000 per year to live on now, you’ll need about $180,600 20 years from now.
If all of this sounds a bit overwhelming, don’t worry, Guidepost Financial Planning and other advisors can help you develop a solid plan. Similarly, we can help you analyze the income side of things as well.
Want to learn more about these and other ways to realize your financial objectives? That’s exactly where Guidepost Financial Planning can help. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.