Retirement can be one of the best seasons of your life. Since you’re not working, you have more time to enjoy your favorite activities and pursue hobbies. However, you also may experience a drop in income. Make a retirement budget as you stretch your financial resources and enjoy your retirement.
Calculate Income
Several factors affect your retirement income. They include:
Retirement date
Inflation
Rate of return on savings and investment accounts
Taxes
Social Security
Because interest rates change, your income may also fluctuate. However, you can use your retirement and savings account statements, last year’s tax return and Social Security estimated payouts to estimate what your income will be during your retirement.
Calculate Fixed Expenses
Some expenses, such as housing and utilities, remain the same every month. Remember to calculate other fixed expenses, too, like taxes, insurance premiums and home maintenance.
Research Health Care Costs
After retirement, you may find that your health insurance costs drastically increase. Research your options under Medicare and private insurance to find the best deal.
List Optional Expenses
You probably buy dozens of optional items every day and don’t even realize it. The list includes entertainment, gym memberships and late payment fees. Take time to calculate all of these optional expenses and see which ones you can cut.
Decide What You Want to Do During Retirement
Your next budgeting step is to list your retirement goals. Do you want to travel, spoil your grandkids, grow a garden or write a novel? The activities you want to pursue can guide your spending as you create a balanced retirement budget.
Make Trade-Offs
Decide which items in your budget are necessities and which you can live without. For example, you may decide to sell your second car and buy an RV or cut the cable bill and save for a vacation. These trade-offs balance your budget and help you make the most of your retirement.
Recalculate as Needed
Your retirement budget will change over time. Maybe you decide you do want to work a part-time job or the interest rate on your investments changes. Recalculate your budget as needed or at least twice a year to make sure you’re still on track.
Take Action Today
It’s easy to put off creating a retirement budget, but you owe it to yourself to put one in place. Spend time today creating a retirement budget that works for you and your lifestyle. If you need help, talk to your financial advisor.
