Budgeting during retirement

As you approach retirement, crafting a well thought out budget becomes essential. A retirement budget not only helps organize your income and expenses, but also aligns your financial priorities with your life stage.

Unlike other budgets, retirement budgets come with unique considerations due to additional income sources and potential healthcare costs.

Let’s explore how to create a retirement budget that sets you on the path to financial security!

How do I create a retirement budget?

  1. Set clear goals
  2. Short-term goals: These are achievable within two years or less. For instance, saving up for a dream vacation in your 60s

    Long-term goals:These span over two years or more. Examples include building a nest egg for retirement in your 30s or allocating funds for future healthcare expenses when you’re 80. You might even contribute to your grandchildren’s Registered Education Savings Plan (RESP).

  3. Evaluate your retirement income sources
  4. During retirement, you’ll have access to various income streams, including:

    To calculate your total monthly gross income, add up all these sources.

  5. Determine your monthly net income
  6. Your monthly net income is what remains after deducting taxes from your gross income. Subtract your taxes from your gross income to find your monthly net income.

  7. Calculate your monthly fixed expenses
  8. Monthly fixed expenses are essential obligations that you must pay regularly. These expenses often have automatic payments set up. Examples of monthly fixed expenses include:

    • Rent
    • Utilities
    • Car expenses and gas
    • Cell phone bill
    • Food/groceries
    • Insurance
    • Mortgage
    • Student loans
    • Medications
    • Clothing
  9. Calculate flexible costs
  10. Flexible costs are those that are not recurring and fall outside of your basic needs. These costs vary depending on your stage in life. Examples of flexible costs include:

    • Take-out dinners
    • Vacations
    • Gifts
    • Wellness appointments
    • Gym membership
    • Entertainment
  11. Include expected costs for specific retirement expenses
  12. Specific retirement costs include the activities you plan to complete throughout your retirement and predictable retirement costs based on trends.

    Retirement activities might include vacations or travel.

    Predictable retirement costs include increased healthcare expenses, appointments or medical emergencies. As you approach retirement, consider both your desired retirement experiences and preparedness for unexpected situations.

  13. Compare and evaluate monthly net income to expenses
  14. Compare your net income to your expenses to determine if you have excess cash.

    If you have surplus funds, consider:

    • investing;
    • saving; or
    • spending the funds on retirement activities

    If you’re short on cash and foresee potential debt, evaluate how you can reduce expenses. The goal is to ensure your retirement years are stress-free and debt-free, allowing you to focus on enjoying life.

    After comparing, determine if you’re following the 50/30/20 rule:

    • Allocate approximately 50% of your income to fixed costs
    • Allocate 30% to flexible costs
    • Save or invest the remaining 20%

    This rule assists you in dividing your income appropriately so you can have money set aside for your fixed costs, flexible costs and savings.

    A retirement budget will help you determine how much income is required to have a comfortable retirement so you can optimize spending habits to ensure a comfortable retirement!

    Why is it important to budget during retirement?

    Don’t stop now, budgeting during retirement will ensure you can maintain your retirement goals, as well as your emergency savings for health-related issues. The key to financial freedom in your golden years is plan, plan, plan!

    If you’re interested in learning more, or if you have any questions, give us a call at 1.866.863.6237.