You won’t find too many people talking about how much they love budgeting, especially when it comes to their retirement budget. Retirement can seem so far off for so long, but as many retired people will tell you, it’ll be here before you know it. People who don’t have a plan in place for how they’ll pay the bills post-retirement often find themselves having to continue working longer than expected, and possibly not be able to retire at all.
Nobody wants to find themselves in that situation, So let’s look at five of the best strategies for determining what your retirement lifestyle will cost, and what you’ll need to do now to support it when the time comes.
Have a clear idea of when you want to retire
Not everybody works until age 65, and even though many people love what they do so much that they can’t ever envision themselves retiring, others wouldn’t hesitate to retire early given a chance. Not many people will find themselves in a position to do so, but if you are seriously planning or expecting to retire early, you need to be realistic about the fact that your retirement will cost much more then it would if you worked until the traditional retirement age.
The additional expenses of an early retirement go beyond just the other, necessary cost of living. You will no longer have an employer providing you with health insurance, for one. If you were a self-employed independent contractor, most of the expenses you used to be able to write off would go away, too. If you retire early, make sure to account for these, and any other changes retirement will cause in your financial life.
Plan for what and where you want to spend your retirement
Retirement means different things for different people. Some people prefer to just take it easy at home, read, watch TV, spend time in the workshop, or otherwise live a low-key, and more importantly, low-cost existence. Others who either focused heavily on their careers or lived frugally to help build a nice nest egg for their retirement may have other things in mind, such as traveling the world or other expensive activities.
It’s important to separate your retirement budget into two groups: essentials, such as food, clothes, and bills, and luxuries that you would like, but can survive without. More importantly, those luxuries are what you’ll be able to cut out if money gets tight and you need to free up some cash for an emergency.
Separate your budget into ongoing and one-time sections
One of the best ways to organize your retirement budget is by breaking it down into ongoing expenses that you’ll need to pay for continually, and one-time expenses for special situations. Examples of ongoing costs include taxes, household costs, car expenses, general living costs like food and clothes, medical costs and life insurance. On the other hand, unusual or one-time expenses might include home purchases, college tuition for kids or grandkids, weddings, major medical procedures, new cars, vacations, or major home renovation projects.
Create other income sources besides social security
Social Security can help offset many of the basic cost of living expenses during retirement, but for most people, it’s just not enough to cover everything. It’s essential that you spend your working years creating additional revenue streams you can rely on during retirement.
Many employers offer 401K accounts you can contribute pre-tax income to, but some people take the extra step and open up a Roth IRA as well. If you have the talent to create content like videos, music, books, or anything else, you can sell those as a way of creating a passive income stream for extra income.
Anticipate that your family may need help with money at some point
A lot of people had hard times in their lives when they were on shaky financial ground, and needed their parents’ or grandparents’ help to pay the bills. Loss of a job, medical emergencies, divorce, and a whole host of other life events can wreak havoc on a family member’s finances and leave them in serious need of assistance.
Even aside from significant catastrophes, at some point, you might want to help your family by providing financial assistance in other ways. For example, you may decide to help a child put a down payment on a house, or set up a college fund for your grandchildren. These kinds of things need to be factored into your budget so you won’t need to choose between helping your family or eating.
Assembling a retirement budget may not be the most fun thing you’ll ever have to do, but if you put in the time and effort into planning your finances now, you’ll be in a much better position to ensure that you’ll have enough saved up to ensure a happy and comfortable retirement lifestyle.