6 Tips for Planning a Realistic Budget During Your Retirement

• Author: Russell Sawayn
• Posted: 2024-08-06

When you think about retirement, you probably picture kicking back and relaxing. While it is true that this period in life is a great time to unwind, destress, and enjoy yourself, you still need to consider some practicalities. Since you'll be living on a fixed income instead of earning extra cash, it's smart to plan ahead and budget your funds. Here are some of the top tips financial advisors recommend to their clients who are budgeting for retirement.
 

Don't Forget to Account for Inflation

It's easy to look at your monthly budget, see that you spend around $5,000, and then plan your retirement around the assumption you'll be spending $5,000 a month for years to come. Unfortunately, inflation is causing prices to rise rapidly. For example, the average annual cost of prescription drugs has increased by 311% since 2000. This can end up depleting your savings a lot sooner than you'd otherwise assume. Financial experts recommend that retirees assume prices will increase by 2% each year, so they should plan for these rising costs.
 

Rethink Your Housing

Housing is the number one expense during retirement. Therefore, if you're concerned about your savings, it's one of the most important factors to consider. It's a wise choice to think about whether your current home will suit your needs during retirement. If you have a lot of unused space, a house that requires a lot of repairs, or a house that's hard to move around in when ill, you might want to consider moving. Try to think about potential ways your home could cost you money and figure out whether it's worth moving to an area with a lower cost of living. If you can find ways to cut down on housing costs, you'll have a lot more flexibility with your money during retirement.
 

Plan for a Loss of Benefits

Many retirees make the mistake of not considering that retiring will take away many of the benefits associated with their job. In addition to losing health insurance, you can lose things like health savings accounts, life insurance, company cars, regularly paid lunches, and other workplace benefits. The good news is that you may be eligible for certain government benefits, like Medicaid, that will cover the loss of your workplace benefits. However, you still need to exercise caution and plan ahead. By carefully considering what benefits your job provides, you can make sure that you cover any losses.
 

Budget Money for Some Splurges

When retiring, many people focus on bare minimum costs. It's tempting to think, "I could retire now if I just live on oatmeal and stay at home all the time" However, the reality is that any person, retired or not, will inevitably want to purchase some luxuries every now and then. You're more likely to save the right amount of money if you acknowledge that you'll still want to shop, travel, and dine out every now and then. Make sure you estimate your budget based on current expenses, not a theoretical world where you live very frugally and ration your funds cautiously.
 

Carefully Choose How to Withdraw Money From Your Retirement Accounts

No matter how much money you have saved up for retirement, it's important to manage withdrawals carefully. Due to the way withdrawals work, there can be tax implications for taking money out of your retirement funds. Furthermore, some types of retirement savings, like stocks, might fluctuate in value depending on when you withdraw. The general rule is to only cash out variable-value assets when their price is high and always to always spend taxable accounts before tax-deferred ones. However, to fully optimize your retirement budget, you might want to consult with a professional about a withdrawal schedule.
 

Focus More on Preventative Care

Any good retirement plan usually recommends saving money for unexpected emergencies like health problems, broken-down cars, or home repairs. While this is certainly wise, you might also find that some lifestyle changes can reduce the chance of emergencies happening. Preventative care is an often-overlooked way to save money during retirement. Things like getting regular oil changes, taking the time to exercise, and remembering to clean your gutters each year can save you a lot of money. Another helpful perk is that preventative care makes your retirement more enjoyable and less stressful.