After spending almost every weekday working, making money, and saving for the future, you’re finally approaching retirement. You’re probably excited about entering a new phase of your life. But now that your retirement years are here, you may have questions about how to make your money last.
Budgeting for retirement isn’t the easiest thing, but it is essential. Splurging early in retirement is a sure way to derail your budget. This mistake can have long-lasting consequences when certain vital expenses, like health care, increase.
Here’s how to build a budget to live your best retirement life.
First, consider your monthly essentials.
The Balance explains that your essential living expenses are the first costs you’ll need to consider. Your house is one of these. Others include:
- Health care
In many cases, retirees find that their housing expenses decrease during retirement. Maybe they’ve finished paying down a mortgage, or they chose to downsize to a smaller place that costs less to maintain. Either way, fewer housing expenses are often welcomed by retirees, according to The Motley Fool.
Transportation costs also tend to go down during retirement. Consider the price of your daily commute; fuel, parking, and auto maintenance costs add up quickly. While you’ll likely still hang onto your car after retiring, you probably won’t be driving it twice daily anymore.
Health care is one expense that most retirees can count on increasing, especially in their later years. When planning out your budget, don’t neglect to consider how aging will affect your health.
Solution: move and downsize.
Downsizing is beneficial for a few reasons. You can consolidate and lower your expenses. You can also simplify your life by having fewer things to manage.
Think about your home, for example. If you sell your current home, you can add the money from the sale into a savings or spending account, and you won’t end up paying as much in property taxes if you decide to move into a smaller home. If you move into a condo, there will be homeowners association fees but no costs associated with maintenance or anything similar.
Second, include less-frequent essentials
Typically, people calculate their expenses on a monthly budget. But some bills come around once or twice a year that are just as important. For example, auto insurance, property taxes, and insurance premiums are quarterly, biannual, or annual expenses. Don’t forget to include yearly spending on holidays and birthday gifts.
Solution: Have a separate fund to pull from.
You can start taking money from your 401(k) and Individual Retirement Accounts just before you turn 60. But you don’t want to rely on these funds to pay for everything.
Ideally, you should have an emergency account that contains roughly six months of living expenses. This can cover anything that pops up unexpectedly, such as hospital visits or car repairs. Talk with a financial advisor to strategize the best way for you to build your retirement investment portfolio.
Third, consider your retirement lifestyle.
Everyone has an idea of what they want their retirement to look like. Some retirees like to stay local and spend more time with family and friends. Others prefer to spend their golden years jet-setting and seeing all the sights they couldn’t see when working. Still, others choose to take up an entirely new hobby.
Solution: Dream big. Plan wisely.
Think about your dream retirement and what will fill your time. Then research the expected costs of it. Will your retirement hobby be learning how to sail? Factor in the cost of your boat (as well as sailing lessons, dock rental, and maintenance). Would you rather spend your retirement creating a beautiful garden? It’s a relatively inexpensive hobby, but it’ll cost some money.
Finally, take unexpected costs into account.
No one can predict the future – which is why you must prepare for anything. Bankrate noted that it doesn’t take much to knock your retirement budget out of whack. Two common traps many retirees succumb to are getting carried away with their newfound hobby or diving into vast home upgrades.
If you have children, don’t leave them out – even if they’re full-grown and on their own. Many adult children will turn to their parents when times get tough. If you think you’ll be inclined to help them financially, be prepared for your generosity. Set some money aside for this.
Solution: Continue Investing, But Simplify.
If you want to ensure your money lasts, you may want to continue investing. Talk to your financial advisor about your situation. You should also consider simplifying your investments. For example, think about consolidating your assets to one financial institution, so it’s easier to manage everything.
It’s important to know what exactly your risk level should be, however. You still need room for growth, but you don’t want to put all your money on the line.
Enjoy your retirement!
Planning your retirement budget may not be a fun or exciting activity. But, it certainly is an important one. Have a solid financial plan to prepare for anything your post-career years have in store.
Bank Midwest can help you save and plan for your retirement.