Retirement seems like a carefree period of your life where you stop focusing on daily responsibilities in a career and enjoy life at a slower pace. While most of that is true, that does not mean that all responsibilities disappear overnight. You will still want to make sure you are keeping track of your income and expenses to ensure that the comfortable retirement you are dreaming of endures for as long as you have been dreaming it will. NerdWallet cites US Bureau of Labor Statistics data that shows Americans over the age of 65 spend less per month, roughly $3,800 total, than younger Americans. Even though most retirees spend less, it will not happen on its own. That is where a retirement budget checklist comes into play.
Step 1: Analyze Fixed Expenses
Americans are fed a lot of information about how much money they should have for retirement, but those figures are not often realistically applicable to all retiring Americans. After all, everyone has their own taste for travel, daily and monthly expenses, dining out, and housing. You can start with your retirement budget checklist by figuring out just how much your fixed expenses are costing you each month. The Motley Fool found that most Americans over 65 have lower fixed expenses on average:
- Housing - $1,294 per month
- Transportation - $571 per month
- Food - $459 per month
- Entertainment - $205 per month
Step 2: Watch Out for Changing Healthcare Costs
Healthcare costs often form a hidden danger in any budget, and that includes a retirement budget. In 2016, Medicare Part B deductibles were $166 and retirees were expected to pay 20% of the cost for services after that deductible. This might not seem like a lot of money, but depending on your overall health, this could prove damaging to your budget in retirement. Remember that while Medicare covers most preventative care services, there are some common medical services it does not cover at all (i.e. eyeglasses and hearing aids).
Step 3: Plan How to Spend Your Time
Variable expenses often provide the best chance to cut costs and save money during retirement. These expenses include everything from entertainment and dining out to vacations during retirement. How are you going to spend your time during retirement? Will you mostly stick to your home with one or two weekly outings and a singular vacation a year? Or do you want more? You will have to see how your retirement income and desire to spend your time match up to ensure expenses do not drain your income.
Step 4: Calculate Fixed vs. Flexible Costs
Now you are ready to compare your fixed and flexible costs. Most fixed costs, such as rent/mortgage and car payments, will not change from month to month. On the other hand, expenses such as utilities and entertainment are flexible and can be reined in to a certain degree. Take the time to compare your fixed and flexible costs, balance those against your income, and see where you can trim some of the fat in your spending.
Step 5: Review and Adjust
When all is said and done, it is vital that you do not make a retirement budget simply to check the boxes and say you did it. Use that retirement budget checklist to see if you are meeting your goals to cut expenses and determine how you should best spend your retirement income during your golden years.
Getting professional assistance is also a very smart move that may help you achieve your financial goals. Visit us at Manhattan Ridge to start building your retirement plan.
The views expressed are not necessarily the opinion of Social Advisors, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.