Are you approaching retirement? 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.
However, one step you may not want to ignore is the development of a retirement budget. A budget can be one of your most powerful financial tools. 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, most 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:
Estimate your fixed expenses.
You can’t predict exactly what your expenses will be in retirement, but you can probably develop a fairly accurate estimate. 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 costs.
The next step is to list your discretionary costs, such as shopping, dining, travel and others. This could be more difficult, because these costs can be unpredictable. It may be helpful to think 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.
Once you’ve imagined what your retirement will be like, you may be able to project 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.
Don’t forget emergencies 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 Benefit Resource Partners. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
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