Ask folks in the U.S. how much a retirement budget should be, and many will answer with a seven-digit figure. For instance, in 2021, they said they needed $1,050,000 for a comfortable retirement. Then, in 2022, they hiked that up to $1,250,000.
Unfortunately, most U.S. retirement accounts hold only $87,000. That’s not even 10% of $1.25 million.
You want to meet all your financial needs during retirement, not run out of money. That’s why you must learn how to budget for your retirement years.
This guide covers the essential factors to include in your budget, so read on.
1. Fixed Expenses
Fixed expenses are costs that don’t change with time. That makes them easier to forecast, which is perfect, as they make up a large chunk of your expected spending.
One example is a mortgage, which about 44% of U.S. retirees aged 60 to 70 still carry. As long as it’s a fixed-rate mortgage, you can count on its payments to stay the same throughout the life of the loan.
Car loan payments are another example, and so are life insurance premiums.
2. Variable Expenses
Variable expenses are expenditures with changing or fluctuating rates or prices. Thus, they can be higher one month and lower the next.
Some examples include groceries, electricity, gas, water, phone, internet, and food expenses. Spending on entertainment (e.g., night outs and movies) and shopping are others. They can also include unexpected expenses, such as health or home emergencies.
Since variable expenses vary, budgeting for them can be more challenging. Therefore, tracking them, such as through a budgeting app, is wise. That way, you can reduce your chances of going beyond your retirement budget.
3. Retirement Income
Among the most common retirement income sources are pension plans and social security. Annuities, with some offering a guaranteed minimum income benefit (GMIB), are other options.
The above sources are usually inadequate income sources, though. For that reason, it’s imperative to supplement them with retirement savings. Some of your options include:
- Simple or Roth Individual Retirement Accounts (IRAs)
- Traditional or ROTH 401(k)
- High-yield savings accounts
- Brokerage Accounts
- Certificates of Deposit
To further boost your retirement income, consider real estate investments. These include rental properties, which can give you passive income through rental payments.
Side gigs can also help, such as freelance or contractor work during weekends. You can then set aside what you earn from these jobs into your retirement savings account.
Once you’ve listed all your potential expenses, sum them all up. Then, do the same with your projected income and savings. Finally, deduct your total expenditures from your cash inflows.
You don’t want a negative difference because that means you’re deficient. So if it is, bump up the amount you save and explore more retirement income sources.
Draft Your Retirement Budget Today
There’s no such thing as being too young or too early when planning your retirement budget. On the contrary, the sooner you do, the sooner you can start building your retirement nest egg. Besides, the earlier you start saving up, the greater the interest payments you can get from them.
For more actionable lifestyle tips and tricks like this, check out our other news and blog posts!