When you think of retirement, you may wonder if the money you’ll have coming in will be enough to pay for your expenses plus some extras like travel and hobbies.
Although there are always some unknowns — such as how long your income will need to last, the inflation rate and the cost of health care — creating a budget as a spending guideline can help you make sure your money will be enough to take care of you during retirement.
These tips will help you budget for retirement:
Gather your financial records.
Fidelity.com recommends that you first gather your paperwork to document the money you spend. This can include your bills, online bank statements and credit card statements. Next, try to determine whether each expense is likely to go up or down during retirement. Your clothing costs, for example, may go down since you won’t need a work wardrobe, but your healthcare expenses may go up, especially as you age.
Divide your expenses into non-essential and essential spending.
Look at all of your expenses and determine whether they’re essential or non-essential, thebalance.com says. Examples of essential spending include food, utilities and health care, while non-essential spending includes streaming services, cable TV and gym memberships. While you’re at it, don’t forget to factor in money for fun. You may find that your vacation and hobby expenditures go up when you’re retired, simply because you’ll have more time to enjoy these pursuits.
Estimate your income when you’re retired and compare it to your expenses.
U.S. News & World Report suggests listing your sources of income in retirement, such as an annuity, Social Security, a pension and interest from investment accounts. Compare your income to your expenses, keeping in mind that they’re estimates. Your income doesn’t have to equal or exceed your expenses on a monthly basis as long as they balance out over the year.
Check your budget every month or so.
Since a budget is a guideline, you should check it every month at first to make sure it’s reasonably on target, according to U.S. News & World Report. As long as major adjustments don’t need to be made, you can safely check it once a year to ensure you’re staying on track.
Consider each stage of retirement.
Keep in mind that your budget may need to change as you go through each stage of retirement. During early retirement, which Investopedia.com defines as ages 62 to 70, you’ll have some of the biggest changes to your budget as you no longer receive a steady paycheck. You may also lose your employer-sponsored health care benefits and start claiming Social Security benefits.
In middle retirement — ages 70 to 80 — you’ll have to start taking minimum distributions from accounts like 401(k)s. You may also have fewer travel expenses than you did during early retirement. Finally, in late retirement — age 80 and up — you may have increased health care expenses and may move to an independent or assisted living facility.
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