![]() ![]() In fact, according to the National Bureau of Economic Research, almost half of Americans suffer from financial vulnerability during retirement and die nearly broke. Many Americans can’t retire because they have not set aside enough for retirement. When planning for your financial future you need to have a clear understanding of all of your living expenses. Why Discretionary and Non-Discretionary Expenses Matter You’ll need to account for the following: ![]() Health care costs tend to rise faster than inflation and can be a big expense as you age. It’s important to have money set aside for annual taxes. Taxes fluctuate as you age as they shift from salaried income to capital-gains rates. These expenses are your “needs” and have to be factored into your retirement planning and spend projection: Living ExpensesĪny loans or credit you’ve taken out that you’ll need to continue to pay down the principal balance with periodic interest payments, including: This is the mandatory spend you don’t have a lot of control over and that you need to be a member of society, such as everyday bills, utilities and cost of living. This is often an expensive category for many that also overlaps with the other categories. If your children and grandchildren are a main focus in your retirement, you’ll need to think about how much cash flow you’ll need for family travel and planned and impromptu purchases. Unique to each individual, luxuries need to be factored into your overall long-term budget, including: Whether visiting family a couple hours away, taking elaborate trips overseas or traveling on emergencies, such as bereavement travel costs add up and will need to be budgeted Luxuries – Varied forms of entertainment that incur some costs, even if they are small, including: These are the costs that are contingent upon your lifestyle, or your “wants.” If you have hobbies you consider to be integral parts of your life, they are part of your discretionary spend: Hobbies – A simpler way of thinking of the difference between discretionary and non-discretionary expenses is differentiating the categories as “wants” compared to “needs.”Īs you approach retirement, it’s important to have a good idea of your daily, monthly and yearly spending so that you can have a good idea of your overall budget and expenses to help project what you will spend in retirement-and save and invest accordingly. Some expenses are necessary, such as your rent, mortgage and utilities others are more luxury or ‘frivolous’ purchases, such as your daily coffee or the cost of your golfing or traveling. Discretionary and non-discretionary spending are terms used to describe the categories of expenses you use daily in life. ![]()
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