Managing Expenses — How You Spend Your Money Affects How You Spend Your Retirement
Map out your expenses
First, list every expense you can think of. ING’s budget calculator can help get you organized. Start with the basics, like housing, food, utilities, taxes and insurance. Then include more discretionary expenses, like dining out, vacations, gifts and other “nice-to-haves.” Consider whether you can afford to help your kids and grandchildren with college or child care costs.
If you manage your spending relative to your sustainable income, you’ve got a better chance of living the lifestyle you want.
Some expenses will be ongoing while others could be short-term or one-time costs. Costs like housing and taxes are relatively consistent, but other expenses, such as home maintenance and health care, may require you to do some estimating. Try to work the one-offs into your budget by averaging out estimated costs along with the ongoing items.
Expense priorities often shift as a person gets older. Entertainment, travel and other discretionary expenses may trend down as you age, but health care costs could go up. It may be helpful to categorize your budget by retirement age phases, such as early (60-70), mid (70-80) and late (80 to end of life).
Assess your income
Add up your monthly income sources, including Social Security, pensions, retirement savings, annuities, real estate income, alimony and any earned income from part time work. Determining how much you will receive from some sources, such as social security or your pension may be straight forward, while other sources, such as your retirement savings, can be more complex. An ING financial professional can help you set up an appropriate withdrawal strategy so you don’t deplete your savings too early.
Inflate the numbers
Inflation has the potential to nibble away at the purchasing power of your dollars. As you prepare budget estimates, assume inflation will make everything cost more over time. You can use the historic average of around three percent or work with a financial professional for more current projections. Growth-oriented investments like stocks, may help to fight the effects of inflation over a 20- or 30-year retirement.
Prioritize, then slice and dice
If your budget is balanced, meaning your expenses do not exceed your income, then you’re in good shape. If the expense column is much larger than the income column, start prioritizing to see what you can cut back on. Work down from “must-haves” and turn some of the “nice-to-haves into “do-withouts.” Try to get your budget as close to balanced as possible before you actually retire.
Ask for help
Managing expenses and spending in retirement is very important. It can mean the difference between feeling comfortable and feeling stressed and worried about the future. A financial professional can help you crunch the numbers and show you ways to help keep your retirement spending in check and your goals on track.