5 Steps to a Realistic Retirement Budget

We want all of our clients to enjoy their retirement years, and to be able to engage in the travel or hobbies of their choice. But of course, most of us will be doing that on a more limited budget than we enjoyed during our working years. So to create a realistic retirement budget, ask yourself these five questions before you retire.

Do I need this big house, or should I downsize and move? Even in retirement, a monthly house payment might be your largest expense. And if you’re lucky enough to have paid off your mortgage, you will still face expenses like property taxes, insurance, repairs, routine maintenance, and yard work. That’s why many retirees reevaluate their housing choices and move to a less expensive area or downsize into a smaller, more manageable home.

Do I really need two (or more) cars? Now that you and your spouse aren’t working in opposite directions, at different times, you probably don’t need two vehicles. Downsizing into just one will mean only one payment (or maybe no payments) and cut your maintenance costs and annual taxes in half. And in many cases, retirees in cities with varied transportation options find that they don’t need cars at all. You might feel considerable financial freedom without the burden of auto ownership.

What do I expect to spend on healthcare? For some, the cost of healthcare even outweighs housing expenses. Medicare will charge you a monthly premium for Part B, and then you will also be subject to deductibles and copayments on services and medications. Some types of healthcare, like dental and vision, won’t be covered at all unless you select certain Medicare plans. That’s why you should meet with a health insurance broker, evaluate the different plans available to you, and choose one that helps you to manage your out of pocket spending.

Do I really need to eat out so often? During your working years, business lunches might have been standard, and you were often too busy on weeknights to bother with cooking. But now that you have more free time, cooking can save you a lot of money plus represent a fulfilling new hobby.

Do I really need all this stuff? Studies have repeatedly shown that we’re happier with experiences than with material possessions. So, in retirement, with more time to spare, you might find that reducing your impulse purchases leaves you more room in your budget for travel and hobbies. But best of all, you might feel more fulfilled when you focus on experiences.

Obviously, we don’t want you to be forced into an overly frugal lifestyle. A mix of solid financial planning with wise budgeting choices will lead to greater freedom and happiness. Schedule an appointment with us to discuss your future retirement income, so that you hopefully won’t feel forced to make too many budget cuts later.