Managing your retirement budget is crucial. If you run out of cash and have to job hunt at age 90, that could put you in a tough spot. Sure, you’ll have more experience than most other applicants, but at that age, you deserve to have sand in your toes, not spreadsheets at your fingertips. Budget for your retirement living expenses now so that you won’t have to worry about running out of money later.
At First, Your Expenses Might Not Change Much...
During your first year of retirement, your living expenses aren’t likely to change much. After all, what difference will there be between the week you retire and the week after you retire? Probably not much -- which is why calculating your current expenses is a good place to start. Be sure to include your regular monthly expenses as well as bills that come up once a quarter or once a year, like your car and home insurance payments.
...but Eventually, Your Expenses Will Change
At some point, your discretionary spending may well decrease. In fact, most people find that they spend the most money during the early years of their retirement. It’s exciting to be done with work, and high time to take that trip around the world or buy a camper van and drive the highways and byways of the United States.
However, even if you’re not buying anything quite so extravagant during your early retirement years, as you age, you may find that you spend more on things like healthcare. The average American will spend a quarter of a million dollars on health care costs during retirement.
Prepare For Inflation
It’s important to be prepared for inflation, especially if a traditional pension will be a significant part of your retirement income. Most pensions aren’t pegged to inflation in the same way that Social Security is, so while the regular income will help you to plan, bear in mind that the amount will lose value as time goes on. That said, there are financial tools that can help. For instance, a low-fee, tax-advantaged investment strategy like the kind we offer at FutureAdvisor can help you to beat inflation and earn interest on the money that’s sitting in your retirement piggy bank.
Like any other period of your life, retirement is sure to be a dynamic time where your needs, wants, and finances shift as time goes on. While it may be impossible to predict everything that comes along during that 20- or 30-year time period, keeping in mind these and other general pieces of advice can help better prepare you for whatever comes down the road.