Are you prepared for retirement in Northern Michigan? Here are five unexpected expenses to consider from Black Walnut Wealth Management in Traverse City.

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Even for those of us who have a good handle on our retirement savings, budgeting for the day-to-day reality of retirement can be daunting. And if we’re not immediately ready to retire, that kind of planning for a more distant future can feel abstract and easy to brush to the side, leaving us unprepared for unexpected expenses that may come our way.

“No one can plan for everything 100 percent,” says Erickson Braund, founder and chief financial officer at Black Walnut Wealth Management in Traverse City. “But the sooner you start, the better.”

Braund explains that while many of his clients may have healthy retirement savings and a solid plan, there are still many retirement expenditures that can crop up and surprise even those with significant savings. Luckily, Braund has a fix that may not be easy, but it’s definitely simple: Creating a detailed vision of your day-to-day retirement reality.

“I tell my clients, ‘Let’s get as vivid as possible,’” he says. It can often take several months of careful listening and strategizing, during which Braund and his client meet, budget, talk priorities, assess financials and create goals.

Braund asks questions like these to get his clients thinking about money requirements beyond just basic living expenses:
• How often do you travel? Do you plan on taking adult children and grandchildren on trips with you?
• Where would you like to live? Do you plan to stay in Northern Michigan year-round? Will you relocate? If so, what are the home prices and taxes like in your proposed location?
• Do you plan to have a second home? If you already own one, do you plan to use it more? Will you be losing rental income or gain- ing rental income on it?
• Is downsizing on the horizon?
• How do you spend time each day? What is a typical day like?
• Will you be covering expenses that were previously covered by a job, such as a company car, cell phone, home Wi-Fi or travel allowances?
• What memberships will you need to enjoy your lifestyle—gym, boat club, HOA, golf, etc.?
• Do you like to cook and eat in? Will you be dining out more? Hosting large gatherings?
• What are your hobbies? Do you plan to scale them up? Will you need to invest in space or equipment? Will you be purchasing major items like a boat, camper or vintage cars?

“The closer we can get to your vision of retirement, the better idea we’ll have of exactly how much you’ll need to budget,” Braund says. His rule of thumb is to use 4 percent as a guideline—4 percent is used to determine an amount you could draw annually from your diversified portfolio. To determine how much to save for retirement, divide your annual income needed by 4 percent. Example: If you want $200,000 a year, you will need approximately $5 million in a portfolio.

Although every client situation is different, there are some easy-to-overlook expenses that Braund advises everyone to consider when planning for retirement, no matter how far out that is.

Five Expenses to Consider When Planning for Retirement

1. INFLATION | It may be top of the news now, but we usually don’t think about inflation because typically it’s moderate and nothing to panic about. “This is something any good portfolio will be taking into account,” Braund says. “It’s not sexy, but a balanced, diversified portfolio really is the answer and helps through all types of uncertainties and environments.” Real estate and the stock market perform well during moderate inflation, he notes, although lately he sees a lot of clients rebalancing portfolios to account for large increases in home values. “You don’t want to be overcommitted in any one area,” he adds.

2. THE NEEDS OF ADULT CHILDREN OR GRANDCHILDREN | Retirement is a time in life when grandchildren may be heading to college or adult kids are trying to buy a home. This can be particularly tricky, Braund admits, when a client has quite a bit of money, as they may feel more obligated to share it. “We always advise that retirement is the first priority,” he says. “You can borrow funds for real estate and college, but not for retiring, so those retirement needs have to be taken care of first.”

Braund often works with multi-generational families to help adult children plan, save and set up investments so they won’t be reliant on Mom and Dad. Some insider advice? Ensure that college-age children or grandchildren pay something toward their degrees, even if you plan to help. “Having skin in the game can really help keep the focus on school and teach them about the value of their education,” he says.

3. WANTING TO RETIRE EARLIER THAN PLANNED | “This is an issue that can come up unexpectedly,” says Braund. “In particular, we see how Covid has changed things. People are tired, stressed; work can feel like too much and can influence their decision to maybe sell their company or step down from their job.” Retiring earlier than planned isn’t impossible, but it can mean making significant adjustments to the budget, such as a smaller home, less travel or lower spending on entertainment.

4. HOBBIES AND PASSIONS | For many, retirement brings the time and money to pursue projects and pleasures that have taken a back seat to work, but those can become a tempting way to spend way beyond expectations. The key here is to price your passions. Check in with someone retired who’s enjoying your hobby of choice and get a reality check on the time and money they spend. If you’re just getting into a hobby, like woodworking, be sure to create a thorough breakdown of all the necessary equipment, supplies as well as space needs. Will you need a heated workshop? Will that require home improvements and a higher utility bill, or will you need to rent a space? Or if you’ve always wanted an RV, will your HOA allow you to store a 30-foot camper on your property or will you need to pay for off-site storage? What about additional insurance, maintenance, repairs or winterizing? Shaking out hidden expenses will help you better plan your budget.

5. HAVING MORE INCOME THAN BEFORE YOU RETIRED | Wait, what? Most people think of retirement as a situation where they are navigating a more fixed income, or downsizing and spending less. But Braund says that it’s not unusual for retirees to be faced with income from multiple streams such as investments, along with new sources of income such as social security and pensions. “If you have accumulated a good chunk of retirement funding you could end up paying more from a tax standpoint,” he explains. “It can get complicated, so we help clients determine where to take the money from in a tax-advantaged way.”

No matter when you plan to retire, having a clear picture of how you want your life to look and being alert for hidden expenses will help prevent you from having to reconfigure a budget or give up certain things that feel important. “The sooner you can plan and save,” Braund says, “the more your money is working for you.”