They spent decades in the workforce to make a living. Your schedule will be determined by the requirements of the job. Meanwhile, you’ve been building up your savings so that one day you can get to that point. Retirement.
Now there is no alarm to wake you up in the morning and no boss to respond to. You can finally get around to ticking items off your bucket list – or just get the chance to watch a midweek matinee movie.
The world is your oyster.
Life may feel more relaxed and carefree, but that doesn’t mean you run out of financial responsibility. Indeed, now is the time you need to budget your money even more carefully.
Live from what you saved
When you say goodbye to your 9-to-5 year, you also say goodbye to your regular paycheck. You depend on social security checks, the money in your retirement accounts, and additional income like a pension to cover your expenses.
Sticking to a budget is critical to making your retirement plan last. The money you threw away in your working years must span decades. Remember, living a fixed income life means there are no bonuses, overtime, or promotions to increase your cash flow.
How much should you have saved?
Hopefully, if you’ve already retired or approaching retirement age, you’ve done the math to see if you have enough money to stay afloat.
A popular rule of thumb is to save 25 times your average annual spend. But how much money you will need in retirement depends on many factors, such as your age, where you live and the type of retirement you want to enjoy.
If you retire at 60, rent a skyscraper in New York City, and want to travel every few months, you will need significantly more money than a retiree who quits the workforce at 70 and lives in a paid home in rural North Dakota and just stay at home and knit.
There are also many unknowns in retirement – such as what medical conditions you might develop and how many years it will take your money to stretch.
For this reason, it is important to have solid retirement assets and to know your spending in the golden years.
How to make the most of your nest egg
In order for your savings to last, you need to be careful about how much you withdraw each year.
“The gold standard has always been 4%, but new research has shown a different number,” said Chuck Czajka, certified estate planner and owner of Macro money concepts in Stuart, Florida.
He said if you withdraw 3% per year instead, you will get a 90% success rate for a 25 year retirement.
Remember, once you have determined how much you can withdraw per year, you want to divide that amount by 12 to see how much you can withdraw each month. Czajka recommends withdrawing money from your retirement account every month instead of taking out everything you need for a whole year.
When you meet with a financial advisor, you can create a custom plan that is tailored to your individual situation.
“As people near retirement, they should work with a retiree to determine their expected retirement income,” said Lisa Bamburg, a registered investment advisor and owner of Insurance advantage in Jacksonville, Arkansas.
Taking income into account beyond your savings
In addition to the money you have saved in your 401 (k), individual retirement account (IRA), or other investment accounts, a portion of your retirement income will come from social security benefits.
You can start receiving social security benefits from the age of 62, but receive less money per month than if you waited until you reached full retirement age – 66 or 67, depending on when you were born.
If you delay getting social security benefits beyond full retirement age, you will get even more each month. However, once you are 70, there is no additional increase.
This calculator The social security authority can give you an approximate idea of your retirement benefits. This Retirement estimator is more precise but requires entering your personal information.
In addition to social security, you may have other sources of retirement income, such as: B. Money from a retirement plan or an annuity.
ONE latest report from the National Pension Fund found that many retirees lack great diversity in their retirement income, even though more sources of income make for a safer retirement.
According to the report, less than 7% of older Americans have a retirement income that is a combination of Social Security, a retirement plan, and a retirement plan like a 401 (k). Around 40% depend on social security alone.
“Social security benefits are usually not what most people need to maintain their standard of living,” said Bamburg.
The Social Security Agency says their retirement benefits only replace about 40% of the income of those with average wages – more for low-income workers and less for higher-income people.
How to create an age budget
Once you have your retirement income established, it’s time to create your retirement budget.
If you’ve already budgeted, you’re off to a good start, although your new budget will likely differ from your working days.
Take stock of your major expenses
First, you need to get an overall picture of your current spending. If you don’t have a budget yet or can’t track your expenses, pull out your bank or credit card statements from the last few months. Dig up old receipts if you tend to pay in cash.
If you look at the past three months, you can find out what you are spending on average. Taking an even deeper dive – in the past six to twelve months – will give you a clearer picture and reveal things like your annual auto insurance bill and your vacation expenses.
Group your expenses into categories to get a good picture of where your money is going. You have fixed expenses like your mortgage where the cost stays the same every month. Other expenses such as groceries or utilities vary. For these, you should calculate your average monthly expenses.
Account for changes
After leaving the workforce, you will likely notice some differences in your spending. No longer do you have to pay for downtown parking near the office, dry cleaning your suits, or expensive lunches with coworkers. Your monthly pension contributions are a thing of the past.
Not all budget cuts will come, however. You need to consider new retirement costs, such as B. Health premiums that your employer has previously paid. If you are 65 years old, you can get health insurance through Medicare, but it is likely that as you age you have increased out of pocket medical costs.
If you decide to get it care insurance To reduce the cost of an assisted living facility or a nursing home (in case you need one in the future), you need to budget for these insurance premiums.
And of course, now that you have an influx of free time, you can keep track of the things you’ve always wanted to do – which means more new expenses.
Make room for fun in your age budget
Getty Images A big part of retirement planning is determining what kind of lifestyle you want to have when you stop working 40 hours a week.
Do you want to travel Spending more time with your grandchildren? Discover a new hobby? After you’ve covered your essential expenses, how you spend the remaining expenses in your budget is entirely up to you.
Don’t forget to include the usual discretionary costs like cables, magazine subscriptions, and restaurants. It won’t all be cruise lines and Broadway games.
If you’re married, be sure to share your vision for retirement with your partner so the two of you are on the same page about how you spend your time and money.
Adjust expectations to reality
As you build your monthly budget, you may find that you don’t have nearly as much money as you expected in retirement. That doesn’t mean you have to live the rest of your life to stop saving. You have a couple of ways to get through it.
Take another look at your cost of living. Are there ways to cut costs? Reduce your grocery spending with these tips Save money on groceries. Consider scaling down to a smaller house.
When it comes to your discretionary spending, look for ways to enjoy a more frugal retirement. Benefit from senior discounts. Find out about free activities at your local community center. Find ways to Save money while traveling.
Although retirement means leaving your working days behind, you may have to pick one up Side appearance or part-time job to supplement your income. Look for opportunities that suit your interests so it doesn’t feel like work.
Don’t forget to enjoy this new phase in your life. You worked hard – you deserved it.
Nicole Dow is a senior writer at The Penny Hoarder.
This article originally appeared on www.thepennyhoarder.com