Budgeting for Retirement: A Guide

Money, or lack of it, is a big concern for lots of people throughout their lives, but when we near the age of retirement, this concern can intensify considerably. Retirement brings freedom and a world of possibility, but without a regular wage coming in, it can be difficult to imagine how we will live comfortably, cope with unexpected costs, or even cover basic living expenses.

However, with some planning and a smart approach to your finances, it is possible to build a retirement fund to help you enjoy your retirement. This article outlines some key steps to take when budgeting for your retirement.

Work out how much income you need per month

The first task is to decide how much money you will need each month. Many financial experts suggest that people should aim to bring in 70-80% of their pre-retirement salary. You should consider if and how your expenses will change in retirement. Will you be paying a mortgage or rent?

Do you have debt or credit card repayments to cover? Do you intend to look after a pet or keep up your hobbies? You might need to lease a car, pay for medical insurance, and keep up with home running and maintenance costs. Of course, it would also be nice to have money for the occasional luxury purchase and leisure activities.

Assess your income

When you retire, you will no longer receive just one paycheck each month. If you have a 401(k), Social Security, an IRA, or another type of retirement account, you will have to add up and keep track of several different income streams.

Some people choose to buy an annuity which would be another source of income as the guaranteed payments are made over a fixed period of time. Look at this site for more information on annuities.

There are tools and software that may help you to keep track of all your income streams, pen, and paper or a simple spreadsheet could work just as well if that’s what you are comfortable with.

Do the numbers

When you have worked out how much money you will have coming in and when you can compare it to the list of living expenses you made earlier. If there is a shortfall, you will need to act sooner rather than later to ramp up your savings before your retirement.

This might include moving to a less expensive home, cutting back on your grocery shop, switching to a less expensive car, or increasing your income. The Entrepreneur has some ideas on how to earn more money from home.

Have a test run

When you have worked out how much money you will have to live on in your retirement, it is a good idea to have a test run to see if it is enough. You will still be working and earning money but try not to spend more than you would have available to you in retirement.

Put the money that you are not spending into your savings. If you cannot get by on your retirement budget, you can go back over it to see where you can make cuts. You may have forgotten about a regular payment or need to adjust your living habits. When you have tried and adjusted your budget for a few months, you will know whether you will have enough money for a comfortable retirement. If not, you still have time to improve your prospects.

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