If you are thinking about a retirement budget, you are thinking smartly.  People spend their whole lives working, dreaming of the day they will retire from the 9 to 5 grind.  Unfortunately, many people wind up not having enough to sustain themselves during these years. If you are reading this post, hopefully you are currently saving or have saved for this time.  So how are you going to make sure you use your money wisely?  That is where your retirement budget comes in.

What to consider when it comes to a retirement budget

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How will your retirement look financially

Saying goodbye to your regular paycheck and relying solely on your Social Security checks means you are most likely going to need to stick to a retirement budget.  This will be vital to making your retirement savings last. Whatever money you stocked away for retirement will need to sustain you for many years to come. There will be no new income coming your way in terms of bonuses and raises, unless of course you win the lottery!

How much do you need to have saved

If you are retired or are approaching retirement, you hopefully have an idea of how much money you need to live and pay the bills.  A popular rule is to strive to have 25 times your average annual expenses saved up. With that being said, the amount any given person will need will vary.  Factors like your age, where you live and the lifestyle you want to have, all play into it.

If you are looking to retire by 60 and live in a nice condo on the beach, you are going to need to stock away a lot more money than someone who retires at 70 and is just looking to garden and knit.  There are also unknowns when it comes to your health so the bottom line is, you have no idea how many years you need your money to stretch for.  For this reason, it is key that you stock away as much as possible.

Make your savings last

In order to make your retirement savings stretch for as along as possible, you need to be cognizant about how much money you withdraw each year.  Traditionally, withdrawing 4% was the recommended percentage but life has a way of changing and your situation at any given time should dictate how much is appropriate for you.  It is recommended that you meet with a financial advisor to help you come up with a personalized plan to fit your individual situation.

How to create a solid retirement budget

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Now that you have figured out what your retirement numbers look like, you are now ready to create your retirement budget.

Determine your essential expenses

If you are not currently tracking your spending, that is your first step.  You are going to need to find bank statements for the last few months and review them.  Figure out what you are spending on average but you also really need to get a bit more deeper for a true accurate picture of your spending.  Try and go back at least 12 months so you get a glance at the entire year.  Break up your spending into categories so you can see what is going towards food, fixed expenses, fun etc.

Figure out what your new expenses will be

After you retire, there are some expenses that will no longer be necessary.  Whether it is your dry cleaning bill or daily lunches out, some expenses will leave but others will take their place.  Expenses like out-of-pocket medical costs will go up as you age and if you choose to get something like long-term care insurance (helps cover cost of a nursing home/assisted living facility)you have to budget for that new premium.  In addition, now that you have more time on your hands, there will be new expenses for hobbies you pick up etc.

Add in a line for fun

Retirement years are not just about surviving but also enjoying.  Outings with the grandkids and dinners out with friends are all fun retirement activities that you want to account for in your retirement budget.  Once you have accounted for these expenses in your budget, see what is left over.  Use that money as you wish.  You probably have an idea of trips you want to take.  The key thing is to make sure you have mapped out how your money will cover all of it.  You don’t want to take a big trip and go all out and then end up with no extra money to do anything else for the year.

Research what your healthcare costs will look like

Once you retire, your healthcare costs will come out of your pocket.  This is especially true if you decide to retire before 65 which is when Medicare starts.  Shop around for healthcare plans now so you get an idea of how much money you will need to account for in your retirement budget.  You also need to think about hearing, vision and dental care expenses.  This will help give you a clear picture when putting together your retirement budget.

Don’t forget about home expenses

If you own a home, don’t forget about all the expenses that will still be there once you retire.  Even if you have paid off your mortgage, there will still be plenty of home expenses. The longer you have your home, the more work it may require that you may not be able to do yourself.  This means you will have to hire someone.  In addition, property taxes will continue to go up over time.  For these reasons, you want to leave some wiggle room in your retirement budget.