If you are like many
people, you have been planning and building a nest egg for decades for the
moment when you finally reach retirement age. However, have you also considered
how you would restructure your budget, to accommodate your needs at retirement?
Understanding
Spending Limitations
Your spending reality
will change once you retire. Not only will your income be different, so will
your expenses, and the way you fill your time. With much more free time on your
hands to fill during the day, it is easy to overspend. You need to do two
things before you retire so you can establish better expectations of your
spending power and limitations after you retire.
- Gather your expenses.
- Know your income.
The better you
understand your budget and spending habits now, the more prepared you will be
to make the appropriate changes when you retire. Now is also an ideal time to
assess your monthly expenses and seek out ways to trim the fat. This attitude
of slimming down spending will carry over into your retirement to help you
budget wisely when the time comes.
Adjusting
Your Expenses
Retirement changes much
more than just the number of hours you spend at home each week. At first, it
can be a blessing to have nothing to do every day. It does not take long,
though, for boredom to set in. You will want to be careful that you do not
compensate by increasing your spending in response. You must adjust your
expenses to accommodate your new financial reality. That includes things like:
- Switching to lower-cost mobile phone plans.
- Eliminating unnecessary expenses (subscriptions,
services, coffee habits, etc.).
- Ditch the costly cable plans. With devices like Roku,
Fire TV Sticks, and Apple TV, there is no need to pay expensive cable network
fees.
- Consider level pay services for utilities. Leveling out
your electric or gas bill can help create a more consistent budget across
changing seasons.
- Reconsider the benefit of multiple vehicles. Not to
mention the fees associated with keeping multiple cars on the road when
you are not dealing with a daily commute. You may find that services like
Uber and Lyft can more economically fill in for that second car.
- Try to have your house paid off before retirement. Then
you only have to worry about maintenance, insurance, and taxes on your
home rather than paying a hefty house note each month.
The key is to minimize
expenses without limiting your quality of life. Other things you might do is
take advantage of senior discounts to reduce costs related to dining out and
entertainment.
Things
to Consider
Not only are you
spending more time at home once you retire. The types of things you are
responsible paying for will also change. As you work to create a functional and
effective retirement budget, make sure to include a few unexpected twists, such
as:
- Insurance costs
- Supplemental insurance
- Copayments and other medical expenses
- Costs of caring for elderly parents or boomerang
children
- Potential costs of divorce after retirement - and the
division of assets divorce creates
In other words, you need
to have room in your retirement planning and budget to accommodate a few
unexpected expenses along the way. Natural disasters, marital strife, medical
emergencies, and more can create chaos within your budget.
Putting
it All Together for Your Retirement Budget
In order to get
the most out of your retirement budget it needs to be the following:
- Realistic
- Researched
- Reasonable
- Responsible
While there are no
guarantees, following a successful budget throughout retirement dramatically
increases your odds of financial independence along the way.
