Budgeting After Retirement: A How-to Guide

budget jar

As millions of Americans who were born in the Baby Boomer era reach retirement age, many of them are surprised to discover that retiring isn’t as stress-free as they imagined. For Baby Boomers who are trying to retire but are finding it difficult, there are some easy ways to get a handle on your retirement budget so that you can once again enjoy your golden years.

Although there are many things that will affect your retirement income (taxes, inflation, investments, part time income), there is one factor that you have total control over. How much money you spend, especially early in your retirement, is something that you can easily control. One of the biggest mistakes made by retirees is spending too much money very early in their retirement. This can happen due to the excitement of finally being retired – a “let’s celebrate” attitude that goes on for too long. Excessive spending can also continue beyond the early part of retirement, becoming chronic, which will eventually deplete all of your retirement funds while you’ve still got a lot of years of living left to do.

The smartest move for all retirees regarding their finances, is to set up and stick to a budget. Your retirement budget may look different from your budget during your working years if you are bringing in less money, but the payoff is in the fact that you no longer have to go to work every day!

In order to create a spending budget for yourself, you’ll need to know exactly how much retirement income you’ll receive each month. Add to this any money that you make from a part time job and any dividends you receive from investments. Combine these with any income your spouse (if applicable) is expected to earn monthly. Make sure that the numbers you are working with after taxes. After you have a good handle on how much money will be coming in each month, you’ll need to do some calculating.

How to Calculate Your Monthly Expenditures

  • Start with all non-negotiable expenses. These include your house payment or rent, utility bills, any car payments/car insurance premiums, food and clothing, and the cost of health care. Health care includes the cost of any medications you take every month, co-pays for regular doctor’s visits, and of course the cost of your health insurance*.*A note about health insurance: Do your research on the cost of health insurance after you retire. Your cost may be higher if your employer had been paying for part of the expense. Many retirees forget this fact, and this causes major problems with their post-retirement budget.Medicare: Many people wrongly assume that Medicare is free. While Medicare A is free, it only covers hospitalization. The rest of the benefits you’ll receive via Medicare aren’t free, and you will pay premiums just like you did for previous health care plans. Recent estimates show that, overall, Medicare will pay for approximately 60% of a retiree’s medical costs. The rest will come from your pocket.
  • Take a look at your ‘other’ expenses. After you’ve added up all of the non-negotiable expenditures, then you’ve got to take into account all other expenses you’ll encounter. These include the cost of leisure activities (going to the movies, eating out, vacations) gifts and luxuries (cell phones, cable, gym memberships). Basically, what we’re talking about here is the “fun stuff.”At this point, you’ll need to take into consideration what type of lifestyle will make you happy during retirement. If you will require more leisure activities than your budget allows for, you’ll have to start thinking about supplementing your retirement income with a part-time job. On the other hand, if you are willing to give up certain things that you previously enjoyed (such as a cell phone or an extensive cable tv plan), you’ll be able to cut your budget and spend more time relaxing instead of taking on a part-time job.

It can be difficult to create a budget for yourself, and it is also something that people often avoid doing because they’re afraid of what the reality may be. However, it is in your best interest to create a retirement budget as soon as you possibly can, so that you don’t run into significant financial problems during a time in your life that’s supposed to be your chance to finally kick back a little.

Need help creating a retirement budget? Let us know here, and we’ll happily consult with you FREE of charge.


Image credit: TaxCredits


2 Responses to Budgeting After Retirement: A How-to Guide

  1. Pingback: Is a Reverse Mortgage Right for Me? | Veitengruber Law

  2. Pingback: If You Live to be 100, Will You Run Out of Money? | Veitengruber Law

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