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Beware The Retirement Splurge

When trying to figure out how much money you will need in retirement, the amount you plan to spend is obviously a huge factor. The general rule is that you will need approximately 80% of your preretirement income each year to live in the manner to which you were accustomed. The thinking goes that once you retire, you no longer have to make 401(K) or social security contributions. Certain costs associated with working—commuting, dry cleaning, eating out—will likely go down, while others, such as health care, will likely go up, although perhaps not immediately. This arc in spending was coined the “retirement spending smile” by David Blanchett at Morningstar.

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