Creating A Retirement Budget That Works

Jul 29, 2022 Retirement

Start planning now for how you want to spend your time during retirement and use these tips to help create a retirement budget.

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As you get closer to retirement, many decisions are coming your way, from where you’ll live, to how you’ll fill your suddenly idle hours. One of the most critical retirement decisions involves your finances.

If you’re without a steady paycheck, you’ll be responsible for creating an income to sustain your lifestyle in retirement. As crucial as budgeting is during your working years, having a sensible spending plan will be even more critical as you move through retirement. Here are tips to help you create and follow a retirement budget that works.

Steps To Take

Forget the 80% spending rule. The much-touted 80% rule, which suggests you replace 80% of pre-retirement’s income, is more of a guideline than a prediction. You might spend 80% as much as you did when working, but you could need more or less depending on your retirement lifestyle. It’s best to develop a customized spending plan for your unique retirement goals.

Research your guaranteed sources of income. Guaranteed income will play a key role in your retirement budget, and now’s the time to map out your Social Security payments, pensions, and other steady sources of cash.

Estimate your investment income. It’s time to check out your investment income, from capital gains on your mutual funds and dividends on your stock holdings to interest on savings accounts and certificates of deposit. Use tax returns to estimate this income or go online to look at your brokerage statements.

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Track your current spending. Knowing how much you’re currently spending will give you a baseline, so grab your statements and start going through your bills.

Adjust your spending estimates based on your post-work priorities. Now that you have a baseline, you can adjust based on your retirement lifestyle. For example, those bills for work clothes and commuting will go away, but costs for things like hobbies and travel are likely to go up.

Conduct a trial run. It never hurts to try out retirement before you leave work. Set aside your estimated monthly income, including what you expect to get from Social Security and future pensions, then live on those amounts for a couple of months.

Make adjustments as needed. If your trial runs smoothly, stay on the path you’re on, but continue to monitor your progress. However, if not, it’s time to make some adjustments.

Pay careful attention to spending, especially early in retirement. Spending too much in the early years could reduce your options later, so watch your budget carefully.

Conduct a new analysis every year. It’s important to track all your sources of income, and all your investments, on an ongoing basis. That means calculating your net worth on an annual basis and reviewing your retirement budget accordingly.

Make adjustments based on the results of your analysis. If you want to enjoy a financially secure retirement, you need to build flexibility into your plan. That means making adjustments based on your current circumstances and changing the structure of your budget as you go along.

Your retirement should include fun, relaxation, and adventure, not financial stress. If you want to enjoy your post-work years, you need to create a budget that works for you, flexible enough to change with your needs but robust enough to see you through all the years of your retirement. The tips listed above can help you get started to walk away from work with confidence and never look back.

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Saving For Retirement

Saving for retirement can be daunting, especially early on. Dive into our resources to better understand your options and take full advantage of your best retirement saving asset – time.

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