Is retirement quickly approaching? If so, you may be in the final stages of wrapping up your career and planning your income strategy. You might be assessing your investments, considering when to file for Social Security or even reviewing your Medicare options.
One critical step is the creation of your retirement budget. A budget is always helpful, but it’s especially important in retirement. You can use it to analyze your spending and make informed buying decisions. It can also help you stay on track so you meet your long-term saving and spending goals.
Unfortunately, many Americans don’t use a budget.. A recent study from U.S. Bank found that only 41 percent of households rely on a budget.1 If you’re among those who don’t use a budget, you may want to adopt one before you retire. It could make all the difference between financial difficulty and stability. Below are a few tips on how you can develop your budget:
Itemize your fixed expenses.
You can’t predict the future, but you can estimate your fixed expenses in retirement by reviewing your current bills. Start by making a list of your fixed costs. These are bills that have to be paid every month. They include things like your mortgage, car loan, insurance, utilities and more.
There may be steps you can take between now and retirement to reduce these fixed costs. For example, you could pay off your mortgage or downsize to a smaller home. You could pay off your car or reduce your credit card debt. Think about what these monthly obligations will be after you retire, and then itemize them in your budget.
Project your discretionary spending.
After you’ve listed your fixed bills, it’s time to project your discretionary costs, such as shopping, dining, travel and others. These costs can be unpredictable, so it may be difficult to create estimates. Start by thinking about what you want your retirement to look like. Do you imagine a retirement filled with shopping, dining out and entertainment? Or do you envision spending time with family and enjoying quiet time at home? Consider how you will spend your free time.
After you’ve developed a vision for retirement, you may be better able to estimate your discretionary costs. Itemize them and add them to your budget. Next, total up your discretionary costs and fixed expenses. The sum is your monthly expense need, which you’ll have to fund with a combination of Social Security, pension, investment withdrawals and other income sources.
Remember to plan for emergencies, taxes, and inflation.
There are two other elements to a retirement budget that are important to remember. One is emergency costs. Emergencies still happen even after you stop working. You could suffer home damage. As you get older, you may find yourself more vulnerable to health issues. Be sure to set money aside to help fund these emergencies.
Also, don’t forget about inflation. That’s the gradual increase in prices over time. Inflation is usually modest from year to year, but it can have a big impact over the long term. Expect that your costs will rise modestly each year, which means you’ll likely need to increase your income as well.
Ready to develop your retirement budget? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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