How to Make a Retirement Budget

Facing retirement without a plan or knowing how to make a retirement budget is risky. If you take this risk, you’re headed into what is supposed to be a happy, relaxing period of your life that you worked hard to earn, and you’re doing it not knowing how long you’ll be able to make ends meet. A path like this can take the joy out of retirement, replacing it with unnecessary stress and struggle. There is an easy way to avoid this, though, and that’s by creating a retirement budget to ensure that the bills will still get paid while you kick your feet up and enjoy your golden years.

The good news is that developing a retirement budget isn’t as difficult as it may sound, and the payoff is immeasurable. It takes a little bit of time and effort, but what you put into it now pays off exponentially when the time comes to end your career and live your life exactly as you want to. A comfortable retirement budget is your key to a restful retirement that you can truly enjoy. Let’s take a closer look at how to plan a retirement budget.

There are so many factors that will affect your retirement income, and ultimately, how to make a retirement budget that will work for you. These factors include your retirement time frame, how you commonly spend your money, what savings you have behind you, and more. When we retire, most of us do it for the first time. That means we have no experience with retirement, which leaves us highly susceptible to unknowns. A realistic retirement budget can help you prepare for the inevitable surprises that come with inexperience. A reasonable retirement budget is also an effective way to stave off the stress of not having a plan. We all worry about money, and budgeting takes some of that worry away. Less stress means better health and a longer, happier retirement.

Knowing how to make a retirement budget and planning for your retirement can also help you prepare for and reduce the amount of taxes you may pay out, leaving more for your quality of life. A clear and concise strategy will help you see the bigger picture, which can aid in your understanding of what is and isn’t possible before spending money you may need. Planning your retirement as soon as possible expands the picture you can see to help you make sound decisions. Finally, the typical budget for retired couples helps ensure the financial burden of meeting your necessities doesn’t fall on loved ones. Your relationships benefit from reduced worry, as does your health and quality of life. Simply put, learning how to make a retirement budget and developing one early can be the determining factor in a longer, happier retirement.

Estimating your retirement income may not come easy to you right away, because it’s hard to know what you’ll need when you’re no longer working and you’ve never experienced retirement before. However, a good practice is to take stock of all your savings and investments. Consider all forms of income in retirement, from 401(k)s and IRAs to annuities and company funded pension plans. Using all of these sources of income, work out what you might be receiving each month. This may be lower than your current income, which is normal. Keep in mind that some expenses shrink, while others may become more costly in retirement. For instance, you may downsize your home and pay less for housing, but you may pay more in medical bills and medication. Without a daily commute to work, you might need less for fuel and you might spend more on your hobbies. A good estimate for the income you will need is to aim for 70% of the income you made before retirement. This is a good target but it might require you to cut back spending in some categories to accommodate the reduction.

In the previous section, we briefly touched on the idea that expenses may change a little bit in retirement. To begin a good retirement budget, however, we need to start with our current financials. Taking a close look at how we spend our money today can help us to see how we might spend it in retirement and how it might differ. For instance, your housing expenses might change in retirement because you’ll have paid off your mortgage by then. You might downsize to one vehicle instead of two, and maybe you’re skiing 4 times per season instead of every weekend. Try to anticipate how some of the current costs in your budget might change once you’re not headed to work everyday and your kids have moved out. There’s no real way to be perfectly accurate when making these estimations, so this step is intended to provide you with a broad picture of what your expenses in retirement might look like.

Now that you’ve got a clear understanding of your incoming and outgoing funds, it’s time to throw together a plan that fits into these parameters. Budgeting apps are everywhere and you can find one that works for you on your computer, tablet or smartphone. Spreadsheets or a good old fashioned legal pad and some ballpoint pens are just as acceptable. Your budget should total up your retirement income sources as well as your expected expenses. You can then compare the totals. In a perfect budget, your expenses will have a much lower total than your income. However, this is not often reality. You may find your expenses exceed your income, and that means you’ll have to take a look at your expenses again and identify places where you can cut spending. You may need to consider how to make a retirement budget that is more frugal.

Once you have your budget worked out, take it for a spin. It’s easier to “try on” a new budget when you don’t need to and the stakes aren’t as high. Test your budget for at least a month, so you’re meeting all of your regular expenses. Only use the income you expect to be making in retirement and spend the way you expect you might as well. If you have leftover money from your test drive, put it in savings for retirement. Get an idea of how your retirement budget feels and how realistic it is and adjust as you learn.

Of course we don’t all want to retire and stay home, and some of us want a retirement that looks a little bit different than others. Perhaps you plan to do all the globetrotting you couldn’t do when you were working a 9-5. Maybe you want to sell your house and buy an RV and travel the country. Maybe you plan to cultivate your garden and sell your harvest at farmer’s markets, bringing in some extra income. The point is, your retirement belongs to you and is going to be unique and reflect who you are. As such, you may want to consider some variables for how to make a retirement budget that could apply to your unique situation. Extra income may be earned from selling your pottery for instance, or perhaps your medical costs will start to rise from ailments that affect those who’ve worked hard for a lifetime. The cost of travel you may want to do is a variable that will affect your retirement budget as well as a collection of pristine 1960s Ford Mustangs that you’ve restored. Don’t skip out on considering your irregular and uncommon expenses and income just because they’re not normal monthly expenses. Be sure to include everything in your budget for the clearest picture of retirement possible.

Planning for retirement can be overwhelming and it can be hard to know where to start. It seems like there are so many different factors that we can’t really get a handle on until we’re in retirement. This can make it feel as though the budget we’re creating is just a big guess, which leads to stress and worry and reduces our quality of living. That’s where Everdays can help. Sign up for your free, online account, and you’ll be guided through the process of planning for your future on a platform that was made for young seniors like you. With the aid of Eva, your helpful planning assistant, your Everdays account takes the guesswork out of how to make a retirement budget, and helps you create an accurate view of your future quickly, so you can get back to the things that matter the most to you. Our goal is to alleviate the stress of retirement planning and get you back to living life with a solid plan in place.