Retirement Budgeting 101: How to Create a Retirement Budget

Apr 11, 2019

[vc_row][vc_column][vc_single_image image=”3592″ img_size=”large” alignment=”center”][vc_column_text]Can you imagine a worry-free retirement? Well, developing a retirement budget can help you worry less and have more fun during your golden years. Additionally, putting a plan in place may cut your future financial stress. So, if you want to focus on a playful retirement, here are some tips to creating the ultimate retirement budget.


Why is it Important to Create a Retirement Budget?

Before you create a retirement budget, it’s important to understand the significance of making one. Most retirees have very little income outside their retirement savings. They may have Social Security benefits but the amount they receive may not be enough to support their retirement lifestyle. If retirement planning wasn’t a top priority for an individual, creating a retirement budget is vital to a secure financial future.

To ensure you don’t draw too quickly from your retirement savings, you need to put a plan in place that will space out your spending. This plan is your retirement budget. Some may cringe when they hear the word “budget”. Budgeting shouldn’t be about deprivation, rather it should be about preservation. Changing your perspective on budgeting will help you prosper in your golden years.

Now that you understand the significance of a retirement budget, here are a few simple steps to follow to developing your own.


Step 1: Start Creating a Retirement Budget Early

The earlier you start retirement planning, the better. As you inch closer to retirement, it’s important to evaluate the financial aspects of your life. You need to determine how retirement will impact your income, expenses, and lifestyle.

While you’re still working, begin to review your sources of income and the expenses you’ll have in your golden years. Will you have a pension? Will you have an obligation to take RMDs? Do you have additional savings that will help support your retirement expenses? All of these questions will help you evaluate the different streams of income you can count on in retirement.

You will need to do the same for your expenses. While some of your expenses may decrease, others may increase. For example, since you’ll no longer commute to work and wait in traffic, your transportation expenses may decrease. However, with your free time you may desire to travel more, therefore increasing your travel expenses.

If you haven’t already, you may also want to consider partnering with a financial planner. A financial planner can help you understand and optimize all of the pieces of your financial puzzle to help increase your chances of achieving the life you’ve always dreamed of in retirement.

Financial or retirement planners are amazing financial resources. As you work through the process of creating your retirement budget, they can become your trusted friend and confidant. Not only do they provide support and guidance when faced with tough financial decisions, they can help you see your entire financial picture and suggest options and strategies to aid you in achieving your ultimate goals.


Step 2: Evaluate Your Fixed Expenses

Before you retire you will want to review all of your expenses, evaluating both fixed and viable. This is a good time to start thinking about cutting costs and how you can minimize your spending as you move into retirement. The fewer expenses you have, the easier it may be to plan a prosperous retirement.

First, make a list of all of your fixed expenses. You’ll want to include expenses such as property taxes, mortgage payments, car payments, and food. Look at each expense and determine if this expense will carry over to your retirement. You may be able to pay off some expenses by the time you reach retirement, eliminating the need to include them in your retirement budget.


Step 3: Review Your Variable Expenses

Once you have completed a list of your fixed retirement expenses, move on to your variable expenses. Variable expenses include entertainment, dining out, or travel costs. Keep in mind, as you move into retirement, some of these expenses may increase based on the retirement lifestyle you desire.

After you’ve reviewed your expenses, go through your list and determine expenses you may be able to cut back on. Initiating the process of downsizing your lifestyle will help you make room for other expenses that you may consider more important to your future. For example, you could try calling your cable provider to negotiate a lower cable bill. You never know what discounts companies may be willing to offer.

Next, add up all of your potential retirement expenses and subtract them from your projected income in retirement. Doing this simple calculation will help you determine what you have left over to put toward your new lifestyle. The leftover amount will help you decide on realistic expenses for your retirement.


Step 4: Consider Future Retirement Expenses

Imagine your ideal retirement. Would you like to sell everything you own and sail around the world with your spouse? Do you imagine your golden years spent by a cozy fire, reading your favorite novel? However you imagine your retirement, you need to consider the potential costs of your new lifestyle.

You will also need to consider the extra cost of health care in retirement. According to Fidelity Retiree Health Care Cost Estimate, a 65-year old couple who retired in 2018 would need about $280,000 to cover retirement health care expenses alone. Health care costs can have a big impact on your retirement budget if they are not accounted for. 

Keep in mind, you may need to minimize your expectations for your lifestyle in retirement. You may have to compromise your expectations if your desires don’t fit within your retirement budget. That’s why it’s important to begin retirement planning as soon as possible. If you want to achieve your ideal lifestyle in retirement, you need to begin the planning process right now.


Step 5: Establish a Distributions Strategy

It’s easy to underestimate the amount of money you’ll need to support your retirement expenses. Your financial planner is a great resource for helping you determine the appropriate amount you will need and will help you include all financial factors into your retirement calculation.

They will then review all your retirement accounts and develop the best strategy for distributing your retirement savings. Every pre-retiree has a unique financial situation that requires a unique distribution strategy. Working with a financial planner can help you establish the best plan to meet your financial needs and wants.


The Bottom Line

Your retirement budget isn’t set in stone. It will require adjustments and recalibrations along the way. Establishing a budget is the best ways to be proactive in managing your retirement savings. It will help you highlight areas where you may be able to cut back or save more. If you don’t know where to start, partnering with a financial planner can help you create the ultimate retirement plan.

If you’re looking for a financial planning partner who can help you realize your retirement goals, we have financial planning offices in Redmond, Seattle, Mill Creek, the Tri-cities region, and Denver. Our firm focuses on helping retirees and those preparing for retirement achieve financial freedom by creating a plan that shows them how they can have the income they need and want until they turn 100. 

If you’re ready to take the first step to achieving your retirement goals, our team is ready to assist you. We’ve helped hundreds of couples and individuals transition into retirement with confidence, and we’d like to do the same for you.


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