When planning for your retirement, it is important to keep in mind that a retirement budget will look a little different than a standard pre-retirement budget.
A standard pre-retirement budget can usually be broken into three different categories. Fifty percent of a monthly saving and spending budget should go toward necessities like food and rent, no more than 30 percent should go toward personal, discretionary expenses, and at least 20 percent should go toward our savings goals. Keep in mind that this is a general rule of thumb. Your percentage allocation may vary based on your particular circumstances, such as if you live in an area with higher than average housing costs.
Meanwhile, a retirement budget may look a little different. It is important to keep the following factors in mind:
Housing: You may decide to retire in your current home, or you may want to move somewhere else. For instance, you may want to relocate somewhere warmer, cheaper, closer to family, or more exciting. In the end, it is a good idea to make arrangements so that you have a predictable monthly housing budget that is lower than your pre-retirement spending. If you will be renting, include annual rent increases into your budget. Even if you own your home, remember to account for future increases in property taxes and/or HOA fees.
Necessities: Your daily necessities will likely be different in retirement. You may not be able to cook for yourself or drive your car after a certain age, which may increase your expenses as you rely on hired help. On the other hand, if you relocate and remain very independent, your living expenses may be drastically lower depending on the area you move to.
Because all situations are different, it can make estimating monthly spending on expenses during retirement difficult. Your goal should be to allocate your retirement budget so that spending on necessities and housing combined is less than 40% of your budget.
Your Health: Your healthcare needs and expenses can change as you enter your later years. If you qualify for Social Security disability or are over the age of 65, you will likely receive Medicare. However, you should still save to cover certain drug expenses and other care costs that can be specific to your healthcare needs and preferences.
Keep in mind that you may have out of pocket expenses that are not covered by Medicare or your private insurance. Also, health care cost increases have outpaced than inflation by a large margin in the past few decades. Combined with simple reality that age usually results in increased health issues, it is likely that health related expenses will take up a much larger percentage of your budget in retirement than during your working years.
Family and Entertainment: Don’t forget to leave room in your budget for fun! If you expect to travel in retirement, whether it is to see the world or to visit your family, you will want to manage your travel budget. It is one thing to spoil our grandchildren occasionally, and another to rush through our retirement fund faster than we can afford.
A Source of Income: Not everyone decides to enter their retirement years completely work-free. Many Americans choose to maintain a source of income that’s less demanding on their schedules even after retirement. If you decide to work during retirement, the income from a part-time career can help you pad your retirement fund in case of emergencies.
Once you have a sense of what your daily retirement lifestyle might be, you can calculate backwards to set appropriate savings goals.
Even though your daily life will look different in retirement, you should maintain the habit of spending mindfully. To learn more ways to prepare for retirement, visit www.syncis.com/blog.