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Retirement Planning

Explaining 3 types of costs and expenses your clients should consider in retirement

It’s important to help your clients set smart and realistic goals for retirement. To make it easier for them to understand how they should budget for the future, consider explaining the three types of costs and expenses they will need to think about during retirement. Doing so can go a long way to helping them understand how they manage money properly now and in the future.

You know the first step is helping your clients create a manageable budget. Looking at a budget through the lens of fixed expenses, variable expenses and savings could help clients understand that all expenses are not created equal.

1. Fixed expenses

Explain to your client that fixed expenses are the costs they have to pay that are the same (or around the same) every month or every year they come up for payment. While the amounts may vary slightly, the idea is that your client is responsible for them on a regular basis. Share common examples of fixed expenses with your client:
  • mortgage payment
  • monthly rent
  • monthly property taxes
  • homeowner’s or renter’s insurance
  • utility bills
  • car payments and car insurance
  • life, health or disability insurance

Remind your clients that while these are fixed expenses, they should still be reviewed regularly. Selling a house, taking on debt or marrying someone with a different financial situation can all affect fixed expenses and a retirement plan.

2. Variable expenses

Suggest that your clients think about variable expenses as those that are within their control.

Here are a few examples of variable expenses to go over with your clients:

  • Groceries
  • Personal care items
  • Clothing
  • Dining out and entertainment
  • Hobbies
  • Personal grooming

3. Savings

Saving money is something most of your clients want to do, but it can feel daunting and they may get discouraged. Remind them that planning and budgeting can go a long way to boost savings. Help your clients determine what they need to save for, then have them put the money for those expenses into a savings account. It may be helpful to encourage them to think of their savings as falling into two categories – savings for irregular expenses and savings to go toward a specific goal.

Irregular expenses

Explain that irregular expenses are expected but the timing and actual costs can be hard to predict. Clients need to save for irregular expenses so that they don’t rely on a credit card to pay them. For example, healthcare is a huge irregular expense that your clients will need to budget for. Remember that it may be overwhelming for your client to learn that a 65-year-old couple who wants to retire may need to put away as much as $265,000 for healthcare costs.

A few other examples of irregular expenses that you should discuss with your clients include:

  • Clothing
  • Vet bills
  • Special occasion or holiday gifts
  • Car maintenance
  • Home maintenance and repairs
  • Annual or quarterly property taxes

Goal-oriented savings

Talk to your clients about what goals they may have, making sure to ask questions about items such as:

  • Vacations
  • Education
  • Car or other vehicle purchases
  • Home renovations or a down payment on a new house

To help your client understand how much they need to save each month, ask them to think about how much they want to save, when they need to have the amount saved by and then divide by the number of months until their target date.

How to help your clients classify certain expenses

If your client is struggling to determine what category a certain expense falls under, here are three easy questions to help them understand:

  • Is this expense the same and does it occur regularly? Fixed.
  • Can I control how much I spend on this? Variable.
  • Should I be saving for this item in advance? Savings.

Want more tips on helping your clients plan for retirement? Read about how to help your clients set smart and realistic retirement goals.



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