The transition from employment to retirement marks a significant financial shift. Living on retirement income can be a challenge for some, but there is one tool that is essential to effective retirement planning: a retirement budget. Though the word budget isn’t typically associated with excitement or fun, its usefulness toward achieving a stress-free retirement cannot be overstated. Crafting a well thought out and thorough retirement budget can be a tough exercise; here are four retirement budgeting tips to help you along.
1. Consider whether your house and car fit into your long-term plans.
Some people decide they do not want such a big house in retirement now that the children are gone and have families of their own. Many retirees decide not to own a home at all in retirement, but rent instead. This reduces the stress of keeping up a home in retirement. Likewise, you probably won’t need that large SUV anymore if it’s just you and your spouse going on road trips together. Why pay for what you don’t really need?
2. Plan for non-monthly expenses.
Do not forget to include all expenses in your budget, whether they occur monthly or not, such as birthdays, weddings, baby showers, and Christmas. Remember car registration and repair costs. Include any annual vacations. Include everything. It may help you to divide regular non-monthly payments down to their monthly costs. So, for example, if you spend $3,000 a year on a summer vacation, block that out as $250 a month. To get an idea of what your retirement budget may look like, see our budget template.
3. Get the whole family involved.
When drafting your budget, the most important family member to include is, of course, your spouse. Financial pressures are one of the largest drivers of marital conflict. Although including your spouse in all aspects of your retirement planning may be an unpleasant process at first, it’s of paramount importance that you and your partner are on the same page. Even if you are the one monitoring and planning finances alone, your spouse can help keep you accountable and on track, but only if he or she is kept informed.
4. Create a budget before retirement.
It’s essential to create a retirement budget while you are still working, so that you can get your expenses under control before you retire. Also, some choices about retirement must be made before you reach retirement age. Delaying planning could close off options that you might have otherwise had.
Start planning a retirement budget by examining how you currently spend your money. Build out a basic framework for your budget that includes household expenses, auto maintenance, groceries, dining out, clothing, and gifts. Don’t forget the little things. We recommend reviewing six to twelve months of previous spending to determine where your money has actually gone. There is a tendency to underestimate what we spend on discretionary purchases, whether they’re nice dinners out, expensive treats, or those extra gifts for the grandchildren.
After drafting a retirement budget, you’ll have a much better idea of what to expect in retirement. You will also be able to formulate a realistic plan for getting to where you want to be. Some people find that it’s best to delay retirement until certain expenses are taken off the budget, such as a mortgage or car payment. Some potential retirees may put off retirement until their children are out of college, employed, and self-sufficient.
Retirement Benefits Institute offers a free retirement budget calculator to help you begin crafting your budget.
