6 Tips for Building a Retirement Budget

Building a retirement budget is critical to working toward an independent and stress-free life after leaving the workforce. Creating this budget can positively impact one’s lifestyle, provide confidence and control over one’s money, and safeguard against potential financial pitfalls. Here are the foundational steps to establishing a retirement budget.

Step #1- Identify retirement income sources. 

These sources may include retirement savings, social security benefits, pensions, annuities, 401(k)s, IRAs, or other investments contributing to retirement income. Less obvious income sources, such as rental properties, part-time jobs, or any side business, should also be factored in. This understanding of income provides the foundation for a retirement budget.

Tip #2- Calculate expenses. 

Categorized expenses into two types: fixed and variable expenses. 

• Fixed expenses- Fixed expenses comprise costs that do not change significantly over time, such as mortgage payments, property taxes, insurance premiums, and healthcare costs. 
• Variable expenses- Variable expenses include discretionary spending such as travel, entertainment, dining out, and other non-essential items or services. 

The goal is to list all projected expenses during retirement, whether large or small.

Tip #3- Estimate healthcare costs.

Estimating healthcare costs is a crucial part of the retirement budget process. Health concerns often increase with advancing age, leading to higher medical bills. While most retirees qualify for Medicare, it doesn’t cover all health expenses, so it’s essential to factor in out-of-pocket costs for supplemental insurance, co-pays, prescription drugs, and potential long-term care costs. Be sure to allow adequate provision for these expenses in the retirement budget.

Tip #4- Plan for inflation.

Another vital consideration is inflation. The cost of living tends to rise over time, affecting the purchasing power of money. Incorporating inflation into retirement budgeting can help prepare for years of inflation that can erode retirement savings. A financial professional can help calculate inflation adjustments accurately.

Tip #5- Review and adjust the budget.

One essential strategy is regularly reviewing and adjusting the retirement budget as needed. Retirement income sources, expenses, health, tax laws, and market conditions may change over time, impacting the budget. Regular reviews, at least annually, are recommended to help the budget stay on track.

Tip #6- Develop a realistic budget.

Lastly, it’s crucial to be realistic when building a retirement budget. It’s easy to underestimate the amount of money needed during retirement, so it’s essential to overestimate expenses and underestimate income. This approach provides a cushion for unexpected costs or less-than-anticipated income.

In conclusion, budgeting for retirement involves a comprehensive look at income sources, careful estimation of expenses, accounting for healthcare costs and inflation, routine adjustments, and realistic projections. These steps make creating a retirement budget more manageable and may help provide confidence throughout retirement.

SWG4171698-0124c  This information is provided as general information and is not intended to be specific financial guidance.  Before you make any decisions regarding your financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives.

In addition, Cache Financial specializes in providing strategies and guidance for those seeking a better retirement lifestyle. If you have five million dollars or $50,000 retirement savings, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!