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 The way retirement is supposed to go is that you scrimp and save for
decades while you are working, and then you get to enjoy years of
luxurious, worry-free leisure.
But here is a little tip: Fun does not just happen. You have to
budget for it.
According to new data from Merrill Lynch and Age Wave, 77 percent of
retirees have hardly planned at all for their first five years of
leisure activities. Two-thirds of those surveyed for the "Leisure in
Retirement: Beyond the Bucket List" report have not budgeted for any
travel. And 45 percent have not even guessed at how much leisure
activities might cost throughout their golden years.
This is not just a minor bookkeeping oversight. If you don't factor
in the fun, it could blow a meteor-sized crater in any financial
plan.
"These costs are significant, and you absolutely have to factor them
in," says Cyndi Hutchins, director of financial gerontology for Bank
of America Merrill Lynch. "People just can't seem to wrap their
heads around what their future lives are going to look like."
Financial planner Douglas Kobak, of Conshohocken, Pennsylvania,
recently met a client with grand plans of retiring in two years,
buying a winter home in Florida and traveling the world. But when
Kobak sat down with him and actually calculated the costs of the
dream trip, the client had to rethink the whole plan -- as well as
his projected retirement date.
"It wasn't what he wanted to hear," Kobak said.
Another new survey confirms that we have forgotten about fun in our
golden years. If given another 30 years of life, 56 percent of
respondents vowed to "travel extensively," and 35 percent dreamed of
"living in a different place," according to the study by insurer
Allianz Life, in conjunction with the Stanford Center on Longevity.
But because our lives have taken different paths, almost a third of
us are filled with regret about how things turned out. Talk about
depressing.
Here are a few pointers from financial planners about how to budget
for fun - and avoid any nasty accounting surprises before it is too
late.
1. Forget the 80 percent rule
Many retirees abide by the rule of thumb that they will need to live
on 80 percent of their pre-retirement income. Scrap that, suggests
Kobak.
You will be likely ticking items off your "bucket list" within the
first few years of retirement. Tour Peru's Machu Picchu? Volunteer?
Take gourmet cooking classes?
"Most retirees need an income of at least what they were earning
just prior to retirement, to maintain their lifestyle and do leisure
activities as well," says Kobak.
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The flip side is that leisure spending for late-stage retirement will be
correspondingly less. At 90 or 95, you will not be zipping around the globe
quite as much, and likely spending more on healthcare costs instead.
2. Get creative
Just because you want to maximize your leisure time, it does not mean you have
to maximize the amount you spend on it. Since you no longer have money coming
in, get inspired to make the most of the money that is going out.
"One client and his wife loved golf, so they would volunteer for the PGA tour,"
said Marguerita Cheng, a financial planner in Potomac, Maryland. "They got to
play on some of the world's best courses for free. Another client always wanted
to visit Africa, so he went on several medical missions."
3. Find out your partner's idea of fun
It is astonishing that this even needs to be said. But apparently it does,
because two-thirds of those with a partner have not discussed how much leisure
time to spend together in retirement, or how much money to devote to it,
according to the Merrill Lynch data.
In other words, spouses are living under the same roof, and yet have completely
different notions of what retirement is going to look like. One might have
dreams of a farmhouse in Tuscany, while another might want nothing more than to
stay stateside to look after the grandkids.
"If you are not even talking about what you want to do, then you can't begin to
put any numbers on it," says Merrill Lynch's Hutchins.
(Editing by Beth Pinsker and Dan Grebler)
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