Creating a Retirement Budget

Creating a Retirement Budget

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It’s rare to find someone who enjoys putting together a budget. For most people, it’s at the very least a pain, and at the most it’s a frustrating and somewhat emotional or embarrassing experience. Others feel overwhelmed because they’ve struggled to stick to a budget in the past. Planning a budget for retirement has additional complications because you’re working with a limited amount of saved funds.

Most people imagine retirement budgeting as something that happens naturally when they decide what their retirement goals are. However, this isn’t always the case. Regardless of what your retirement goals are you need to understand your spending. This requires a budget that allows you to live comfortably day-to-day based on your existing savings and still allow some wiggle room for unexpected one-time expenses, your biggest dreams like traveling the world, or your legacy plan.

Understanding Your Retirement Budget

Writing a pre-retirement budget is fairly easy:

#1: Write down income.

#2: Subtract expenses.

#3: Set financial goals.

#4: Use any leftover funds toward exciting “extras” in life that support your values.

A retirement budget is a bit different because when you’re working full-time, your budget is centered on a set amount of income coming in and out of your life from your employer. During retirement you’ll still have consistent income, but you are the source – not your employer (with the exception of a potential pension). Your funds aren’t bottomless, and you’ll have to budget accordingly.

Many retirees make the mistake of underestimating how much entertainment during retirement costs. Without a full-time job, retirees look to hobbies like golf, travel, art, or spending time with family to fill their days. While it’s true that your retirement budget can absolutely be reigned in if need be, it’s wise to get out in front of your potential expenses and create a budget that aligns your lifestyle goals with your retirement savings.
Know What You Own
The first step to take when building your retirement budget is to know what you have saved and where. Many retirees have a diversified portfolio, and that potentially means multiple different investment accounts or other sources of retirement income, such as:

  • A workplace retirement plan, such as a 401(k)
  • An individual retirement account, such as an IRA and/or Roth IRA
  • A pension
  • Social Security
  • Insurance
  • Part time or freelance work that you plan to continue on throughout your retirement

Understanding what you own and how you’ll be able to access it on a month-to-month basis during your years as a retiree is critical.

Take a Hard Look At Your Potential Expenses

Pre-retirement expenses are fairly predictable. You save for potential emergencies, and you plan in advance for any large expenses like vacations or big purchases. However, retirement is a bit different. Your expenses are still somewhat predictable, but you’ll be spending more funds in other categories like travel, eating out, hobbies or community events. You’ll also likely incur unexpected medical expenses as you move through retirement. No matter how healthy you are at the time you retire, things happen as we age!

It can be helpful to list out all potential expenses that you can anticipate including day-to-day expenses, medical expenses, and some things that might be considered “frivolous” but make retirement enjoyable! It’s important to be honest to yourself about what these expenses might be. It’s tempting to buzz through the first few years of retirement in an excited, and somewhat distracted state. After all, you’ve worked for this for a long time! But understanding exactly what you might spend your carefully curated savings on, and putting some reasonable limits on yourself can be helpful to make your money last.

Accounting for The Big Things

When you set a savings goal before you retire, you might be saving for the day-to-day lifestyle you plan to live, or the unexpected medical expenses you’ve been dutifully preparing for. But the big-picture things that make retirement fulfilling and rewarding often go unbudgeted. Some of these expenses might be weekend trips away with your spouse or partner, the supplies you need when tackling on a home renovation project you finally have the time to take on, or extra trips to the ice cream stand with your grandkids while they’re off for summer vacation.

Don’t forget these one-time items! Many people justify being over-budget by blaming one-time items. Since these items seem to occur every year, they should be part of the budget.

At the end of the day, your retirement budget needs to cover a lot of expenses – and it can be tough to look ahead at the next several decades of your life and know exactly what you’ll need to spend your retirement savings on. This is where the help of a professional financial planner can help. Your financial planner can guide you through building a retirement budget that allows you to live comfortably while still splurging on some of the retirement lifestyle goals you’ve been looking forward to for a long time.

Your retirement is a time that you should enjoy, and worrying about finances is the last thing you want to spend your days doing. Contact the team at Goepper Burkhardt today to learn how a financial planner can help you create a retirement budget that allows you to live the life you want.

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