Spend some time creating a spending plan
Create a spending plan
For many people, the term “budget” creates a mental barrier because it sounds restrictive or difficult. That’s the opposite of what you want your retirement lifestyle to be, so call it a spending plan. It’s about managing expenses and finding a balance between the money you have and the lifestyle you want.
Depending on your lifestyle, you may need even more income in retirement than when you worked.
If you already have a spending plan, you may just need to tweak it. Look at your expenses and estimate which items may go up and which may go down. Some may go away completely, like employment-related expenses. Other expenses may need to be added, like health insurance if you’ll no longer be covered through your employer. Detail your retirement income sources and expenses using our budgeting worksheet.
How much will you need?
For years, financial experts suggested that retirees would need about 70 to 80 percent of the income they were earning just before retirement. Advances in healthcare and longevity trends mean that today’s retirees tend to be more active. They are determined to live life to the fullest; and that costs money. Depending on your lifestyle choices, you may even need more income than you did when you were working full time. As you build your new spending plan, consider these expense categories:
- Housing — Many baby boomers will enter retirement still making mortgage payments, though most financial professionals recommend delaying retirement until the house is paid for. If you’re fortunate enough to no longer have a mortgage, consider whether you’ll want to buy or rent a vacation property.
- Transportation — If you currently commute to work, gas and car maintenance costs may go down, unless you plan on hitting the road with all that free time.
- Clothing — Work clothing can be costly. If you spend retirement wearing jeans, dry cleaning and clothing costs may decrease.
- Medical costs — Replacing employer-provided health insurance can be expensive. Medicare doesn’t kick in until you’re age 64 and 8 months, so you’ll need individual coverage before then. Also factor in dental care, eye care, prescription costs and any supplemental Medicare insurance.
- Food — If you’ve compiled a list of 4-star restaurants you’ve been meaning to try, dining out costs could rise. But if you’re looking forward to more relaxing meals at home, you might be able to trim these expenses.
- Travel — Many retirees use their newfound free time to visit all the places they didn’t have time to see while working. Travel can be costly and needs to be estimated in your budget.
- Retirement contributions — No more paychecks means no more contributions into your retirement plans, so that expense can be checked off.
- Family assistance — If you think you might be providing some financial support to your children or grandchildren, make sure your income can handle it without putting your own financial security at risk.
Plan with us
Take the time to create a realistic spending plan and you’ll feel in control of your life. It will allow you to get creative and enjoy this new phase with confidence in your ability to cover expenses for the long haul.