Are your finances ready to support you through retirement?
You may have planned well and saved for your retirement thinking that your expenses will not change.
However, this is not the case as retirement will change your spending. Some expenses will come up while others will disappear.
The number of Australians transitioning to retirement is expected to increase over the coming years.
As such, it is good to create a budget when you are about to retire considering your new lifestyle and income.
Here are tips to help you prepare a good retirement budget.
1.Assess Your Finances
Before creating your retirement budget, determine your current income and expenses. During retirement, your budget is likely to be more limited and less flexible than when you used to work.
For instance, you will no longer pick up a few extra working hours to get money to buy gifts for your grandkids or save your salary for a vacation.
Knowing your retirement income will make it easy for you to create a good retirement budget, explains Australian mental wellness expert Bob Lane. He says “estimate your retirement income and compare it with your retirement expenses. Even if you don’t have a car payment or mortgage during your retirement, you will have to pay taxes and spend money on basic living expenses such as groceries, utilities and petrol.”
So, write your retirement expenses and check your recent spending to have a rough idea of how much you are likely to spend every month.
2. Try Different Tracking Options
Your lifestyle during retirement is more likely to change your retirement budget. Even though it is easy to estimate your steady monthly retirement expenses, there are flexible expenses that may crop up.
If you retire on a tight budget, track your expenses more closely. It may be a good idea to use online budgeting tools or to speak to a financial expert to help you track your expenses.
These strategies will help you know your income and expenses.
3. Add Fun Money to Your Budget
It is good for your budget to have some fun money. This is money you will spend on hobbies and entertainment. Some people make a mistake of spending their money on too many things early in retirement and spend more money on fun than what they can afford. This is not to say that you should stay at home and watch TV all day to save money.
Add fun money in your budget to enjoy your retirement. This budget is good for everyone regardless of their hobbies during retirement.
The only thing you need to do is to ensure that you plan for your hobbies and entertainment in advance and look for affordable ways to enjoy them.
4. Talk to Your Adult Children About Finances
Some of the baby boomer retirees help their adult children financially by paying for basic everyday living expenses.
Even though you may not want to see your adult kids struggle with finances, it is not a good idea to help them if doing so will put your budget in peril.
Therefore, it is good to talk to your kids about finances before you retire. Tell them what you can afford and what you cannot afford and the help you can offer during retirement. Ensure that the help you are willing to provide will not put your retirement budget in peril.
5. Plan for Health Care Costs
Health care is one of the largest expenses in retirement and can be costly if you don’t have a plan for future health care costs.
“It is good to plan your health care costs in retirement to know how much you should budget for your health care”, explains health care leader Ilona Nichtelein.
You never know when you may have medical problems. As such, it is good to add health care expenses to your retirement budget even if you are healthy right now.
6. Include Big Ticket Items in Your Retirement Budget
Big-ticket items particularly unexpected expenses can put your budget in peril especially if you are on a tight budget.
That is why it is good to include big-ticket items in your retirement budget. Some of the emergency expenses to consider including in your budget are things like car repairs, replacement of your ageing furnace and fun goals like going on a vacation.
The best way to budget for emergency expenses is to save some money every month to avoid nasty financial surprises.
7. Be Debt-Free
Staying out of debt is often one of the best ways to control your expenses in retirement. If you are not yet debt-free, include debt payment in your retirement budget until you pay all your debts. Once you have paid all your debts, try as much as you can to remain debt-free.
One of the best ways to be debt-free is to plan for future expenses. Doing so will help you avoid taking out a loan.
For example, you should ensure that you pay off your loans before you retire. Once you have done this, set aside some money every month so that you can replace or repair the vital things in your life when they start to need costly repairs, explains Air conditioning installer Karl Ammoun. He says “I see many retired Australians who run into financial trouble when faced with repairs to their home. Planning before things go awry can help reduce stress and save thousands.”
Creating a retirement budget is not different from creating a budget while you are working. The only difference is that with a retirement budget, you need to track your expenses more closely.
Most of the retirees have a fixed amount to spend every month.
So, creating a good budget can help you live well on this fixed amount.