Budgeting is a good way to make the best use of your income. When retiring, budgeting is an even more important tool to use. Budgeting involves figuring out your income and necessary expenses, and then keeping track of the money left over. For many people, their income goes down significantly when they retire. It’s important to make a successful budget for retirement so a person can live comfortably and avoid blowing through their money while they are retired. There are a few steps to creating a successful budget for retirement, take a look below.
Figure Out Your Income During Retirement
For many people, their income changes drastically after retirement. This is due to two major reasons: their retirement pay is not as substantial as their working wages, and because of inflation—the rise of prices and the decline of the value of money. Inflation is an important factor to consider when thinking about budgeting for retirement. Planned savings may not carry the same weight in the future as they did in earlier years.
Most people get post-retirement income based on a monthly schedule—so their budget is usually also scheduled on a monthly basis. To figure out income, just add up any earnings you receive after taxes and include any savings plans. Calculating income is an important part of having a successful retirement budget, and usually the first step for any kind of budgeting.
Before you retire, keep track of where you spend the most money while tracking expenses. If you can make a plan to cut down on unnecessary expenses—even before retirement- then it can be easier to translate cuts into your retirement budget, helping you make the most of retirement.
Budget for Necessary Expenses during Retirement
The next part of budgeting is taking your post-retirement income and factoring in the necessary expenses after retirement. Here are a few expenses that most Americans have to work with:
- Health Care: Generally, as a person gets older their healthcare costs go up—simply because of the increase in the amount of care and visits they receive. For many Americans, this is especially important to think about as the cost of healthcare is steadily rising, even with insurance. This is one of the biggest costs that retirees face. In 2017, it was estimated that healthcare costs for a retired couple in America, over the age of 65, was around $275,000.
- Transportation: Although retirees don’t have to deal with a daily work commute, there are still transportation expenses to think about. If you drive—factor in the cost of gas and car repairs that may unexpectedly come up. For those who prefer public transportation, factor in monthly pass fees or daily ticket fees as well.
- Rent/Mortgage/Utilities: Although many people aim to have their mortgage paid off by the time they retire, some people do not achieve that. On the other hand, some people do not own a house in the first place. Whatever your living situation is, it is important to factor in housing expenses.
- Food: Although the cost of eating out for lunch every day—while working—will not be an expense any more, buying groceries will be an ongoing expense. Remember to add food to your budget.
Budget Expenses for What You Want to Do During Retirement
When most people think of retirement, they think about having free-time to do all the things they want—such as forming hobbies. Here are a few common things that most retirees plan to do:
- Travel the World: For many people who are retired, traveling is a large expense they plan on making. If you are someone who wants to travel, it is important to factor in those costs when budgeting. Remember to factor in the different costs associated with traveling such as: housing, food, transportation, and international fees (such as currency exchange).
- Entertainment Costs: Chances are with all that time available to you, you will probably be exploring and experiencing new things. Consider the cost of movies, plays, shows, restaurants, sporting events, and any other entertainment costs that you may pursue.
- Gifting to Friends and Family: For many, retirement is a time where they want to give back to their friends and family through financial support. Whether you want to help someone pay for school or start a business, it is important to budget that into your expenses.
- Continuing Education: For retirees who always wanted to pursue an education but could not because of a full-time job—then school after retirement is something they look into. If you are someone who wants to further their education or take classes to learn something new, then factor this into your expense budget.
Having a successful budget for retirement can actually be fairly simple. To have a successful retirement budget, take these steps: first break things down into a monthly basis, calculate total income (savings included), and factor in both necessary expenses and any wanted expenses (travel, hobbies, etc.). By including these necessary elements, figuring out a successful budget for retirement can be quite simple.