How your expenses can hit your retirement plans
How much you need for monthly expenses is a crucial number to note because it will determine whether you have enough stashed away for a comfortable retirement.
It is not enough to just look at your savings as everyone’s needs are different.
If you have $1 million in your bank account and can get by on just $2,000 a month, you will probably have less to worry about in your old age. But if you live the high life and often splurge $20,000 a month, that same amount of cash will probably last you only until the age of 70.
Many people do not keep tabs on their expenses because there is always a strong tendency to just look at what they have and how much they earn.
Financial planning for them means depositing their salary into a bank account that will also be used to meet monthly expenses. So long as the balance never drops or always increases gradually, they feel they are doing well.
There is nothing wrong with this approach when you are working but when you retire, your income stops while your monthly expenses never cease.
People often find themselves short of cash in old age, not because they did not save when they were younger, but because they are tripped up by unexpected expenses that eat away at their savings.
Here are three common unexpected events that can impact your cash flow in old age.
Drop in investment income
There is a reason why retirees should not invest in risky products – they may end up having not enough money if losses are incurred.
While putting money in fixed deposits and government bonds is a safe bet, you should not rely on such returns because interest rates change all the time too.
Unexpected household expenses
Most folk do not factor in the cost of replacing household appliances because they do not break down often.
But these costs can be considerable if you need to buy major new items like the air-conditioning units, refrigerators, washing machines or televisions.
If you plan to live in the same home, there are huge renovation bills to worry about when things start to fall apart.