Budgeting in Retirement: Living Well in Your Golden Years

budgeting in retirement

Having a well thought-out budget is the best way to start your retirement on the right foot. Retirees must plan to have a form of steady income and create a budget that fits their expected lifestyle. In retirement, financial priorities will change with your changing lifestyle. It can sometimes be hard to determine what kind of retirement budget is realistic until you have entered retirement. While some people overestimate their expenses in retirement, some people struggle to adapt to life on a fixed income. For these reasons, it is a good idea to revisit your budget several times a year.

Retirement involves a lot of big changes, but one of the biggest changes is how most people get paid. Instead of receiving a weekly or biweekly paycheck, retirees typically rely on income that pays out once a month. On top of this, many people find their monthly income reduced in retirement. It can be a big mental shift for people entering retirement to suddenly adjust to all of these changes. Sometimes the best way to adjust your budget in retirement is to go back to basics. Here is how you can take one month to monitor and analyze your retirement budget:

Throughout the month, keep all receipts, payment confirmations, and a tally of any cash spent. It is best to record these expenses daily so you do not accidentally leave something out. Use a spreadsheet, notebook, or app to track your expenses. In tracking spending for a month, you can get a good idea of where your money is going. At the end of the month, sort your expenses into categories: groceries, dining out, entertainment, phone, utilities, housing, insurance, transportation, etc. Be sure to factor in irregular expenses like holidays and birthdays. Your expenses in December are likely to be a lot different than your expenses in June, for instance.

Next, analyze the results. This analysis is meant to be a realistic assessment of your lifestyle as it relates to your spending and income. Where is your money going each month? If your monthly budget was based on your pre-retirement lifestyle, you may see some significant differences between your expected spending and your actual expenses. Maybe you spend less on transportation and entertainment, but you spend more on eating out and medical expenses. Pay attention to these shifts in spending and make sure you are adjusting your budget accordingly.

After you have identified the trends in your spending, figure out where you can cut expenses. Determine which expenses are needs (like bills, housing, transportation, etc.) and which expenses are wants (like entertainment, hobbies, and gifts). In retirement, your “needs” may change. While you may have needed two cars when you and your spouse were working, is this still a necessary expense? Are you eligible for discounts to your cell phone or insurance plan? While you want to make sure you cover your essential expenses first, finding ways to make cuts to necessary spending will give you more financial freedom in general.

Finally, it’s time to put all these insights into your finances to create a new plan for your budget. Identify five goals that make sense for your income and expected expenses. Goals help you align your budget with the intention of getting the most out of your income. Make your goals specific and give yourself deadlines. Find ways to keep yourself accountable. Sign up for auto-pay, use an envelope system to categorize your spending, or get your spouse or partner to join you in your strides to reach your goals. A budget is only as good as your ability to stick with it!

You can do this financial check-in every six months or whenever your budget seems to be spread too thin. Sticking to a budget will help you feel more secure and relaxed so you can enjoy your golden years. Get your finances back on track by taking a fresh look at your retirement budget as we move toward the New Year!

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