Planning for retirement usually suggests vacations and new hobbies but have you thought about creating your retirement spending plan? Calculating your post-career budget now can improve your peace of mind and lessen stress about money down the road. Don’t make the same financial mistake other retirees have made by skipping this crucial step. Maggi Tax shares four simple steps that can help you budget for the needs and wants in your golden years.
- Budget setup
Because factors like inflation, rate of return on savings and investments, Social Security, and more can affect your retirement income, it’s important to dissect your fixed expenses. Start by reviewing the last year’s worth of bank account statements and credit card statements along with the last two pay stubs and last year’s tax return. Use these to categorize essential spending like food and utilities, non-essential spending like memberships, and periodic expenses like property taxes. Once evaluated, add these to a calendar spreadsheet to account for the timing of expenses.
- Add in healthcare
If your healthcare coverage changes after retirement, it might be time to explore available options for healthcare coverage before Medicare begins. Once you have an estimate, add that to your monthly expense budget along with any other dental, vision, or hearing care you may require. Add any other essential expenses like medications so you have a full picture of your healthcare budget.
- Don’t forget the fun
Fun should always be in the retirement equation! Discretionary spending in a budget generally accounts for travel, hobbies, and other entertainment. Will your lifestyle change to add more of these activities? If so, figure out how much you’d like to spend and if any trade-offs are necessary to free up more money.
- Fixed vs. flexible
Now that you have an outline of your expected costs, you can calculate how much is fixed versus flexible. Take the total fixed expenses and all the other non-fixed expenses total and divide them to figure out what percentage of your retirement income will go toward fixed expenses. Does this align with your retirement plan? If not, find ways to lower your fixed expenses so you can increase your flexible funds.