It makes sense, yet many retirees live without one
How important is a retirement budget? You won’t be able to withdraw an unlimited amount of money in retirement, so a retirement budget is a necessity. Some retirees forego one, only to regret it later.
Run the numbers before you retire. Years before you leave work, sit down for an hour or so and look at your probable monthly expenses. Perhaps you decide that you’ll need about 75 to 80 percent of your end salary in retirement. Perhaps it will be closer to 65 to 70 percent. There’s no “right” answer for everyone. Online calculators might help you get at least a basic understanding initially, but remember — a qualified financial professional is likely going to be able to take more into account for you than a simple calculator can.
You first want to look for changing expenses: housing costs that might decrease or increase, health care costs, certain taxes, travel expenses and so on. Next, look at your probable income sources: Social Security (the longer you wait, the more income you may potentially receive), your assorted IRAs and 401(k)s, your portfolio, possibly a reverse mortgage or even a pension or buyout package.
While selling your home might leave you with more money for retirement, there are less dramatic ways to increase your retirement funds. You could realize a little more money through tax savings and tax-efficient withdrawals from retirement savings accounts, by reducing your investment fees or by having your phone, Internet and television services bundled from one provider.
There are budget-wreckers to avoid. There are a few factors that can cause you to stray from a retirement budget. You can’t do much about some of them (sudden health crises, for example), but you can try to mitigate others.
- Supporting your kids, grandchildren or relatives with gifts or loans.
- Withdrawing more than your portfolio can easily return.
- Dragging big debts into retirement that will nibble at your savings.
Retirees can budget well and live wisely. A carefully thought-out budget — and the discipline to stick with it — may make a big difference in the long run.
Todd Kockelman can be reached at 651-204-0655 or Todd@K-FFinancial.com. www.K-FFinancial.com