Don’t Outlive Your Money: 3 Retirement Budget Tips
By Net Worth Advisory Group
While many pre-retirees seem to think they’ll be working until age 70, the reality is that the majority of folks are still retiring right around age 62. And rather than eagerly anticipating the golden years of retirement, almost half of all Americans worry about running out of the money they’ve worked so hard to build for so long. (1)
A retirement budget is an essential piece of retirement planning. Unsure where to start? Let’s look at three budgeting tips to bolster your retirement and savings plan.
1. Take a Look at Flexible Spending Categories
As you build your budget, organize it based on needs. Every single expense should be identified as either fixed or variable and essential or non-essential. For example, your housing expenses are likely fixed and essential. Food is essential, but it is a variable expense. A gym or country club membership may be fixed, but it is non-essential. Other forms of leisure or travel are likely variable and non-essential.
Knowing which expenses are necessary and which are flexible can relieve some of your concerns going into retirement. If you’re used to spending $8,000 a month, once you sort your expenses and discover that only $4,500 of them are truly necessary, it relieves a lot of pressure.
Identifying these spending categories also allows you to make wiser financial decisions and adjust better to market conditions. If we enter a bear market and your portfolio is down, you can cut spending back to cover the necessary expenses you identified. Maybe you put off that big trip or eat out less. This can potentially keep more of your money invested so you can be better positioned if and when the market bounces back.
2. Tax Preparation
Unless all your money is in an after-tax account or Roth IRA, you’ll have to deal with taxes in retirement. Having your mortgage paid off before retirement is a common—and excellent—goal. However, don’t make the false assumption that no mortgage equals no payments.
Part of your monthly mortgage payment may be going toward property taxes and homeowners insurance if you escrow. Don’t forget that you still have to pay these bills when your home is fully paid off, and these figures must be included in your budget (and remember that these numbers will be inflating over time as well). One way to handle property taxes and homeowners insurance in retirement is to set aside money every month, just like you did with your mortgage. This way, you will have the funds available when those bills are due.
Property taxes won’t be the only taxes you’ll owe in retirement. Distributions from 401(k)s and IRA accounts will most likely be considered taxable income. Even your Social Security benefits may be taxable, depending on your overall income. It’s critical that you withhold and pay the proper taxes so you don’t get into a large tax bill situation. A competent tax preparer can help with this.
3. Partner With a Professional
However, it’s not enough to only work with a tax preparer during retirement. Be sure to also work with a competent financial planner—it can mean the difference between a retirement marked by fear and stress (like the 49% of Americans mentioned previously) and one of confidence.
Yes, it’s wise to have a financial professional help you with your investments during this next stage of life—but don’t stop there. You need your professional to help manage not only your money but also your entire financial life.
Our team at Net Worth Advisory Group wants to improve your retirement outlook. Our exemplary financial planning and wealth management advice can help you live the life you’ve imagined.
About Net Worth Advisory Group
Founded in 2003, Net Worth Advisory is an independent, fee-only, CERTIFIED FINANCIAL PLANNER™ and investment advisory firm located in Salt Lake City, Utah. We specialize in helping people transition from the workplace into retirement and ensuring that those who are already retired will not outlive their nest egg. Our top priority is to have clients experience a greater sense of ease with diligent, personalized wealth care and the implementation of customized financial plans and ongoing personalized asset management. We equip all clients with a comprehensive financial plan, meeting every six months to update as needed and review investment performance. Our team is passionate about providing comprehensive financial planning with the fee-only model, and we love feeling like we’re making a difference in our clients’ financial lives.
As a NAPFA-registered fee-only advisory firm, our recommendations are untainted by a hidden agenda to sell financial products paying large commissions. Unlike our competitors at brokerage firms, insurance companies, and banks, we are compensated solely by our clients, so we are financially motivated to provide objective advice that is always in our clients’ best interests. Anyone can call himself or herself a financial planner, but only an advisor with the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation has met the education, examination, experience, and ethical requirements mandated by the CFP® board. Of the estimated 800,000 financial advisors in the U.S., only 55,000 have earned the CFP® designation. All Net Worth advisors are either CFP® professionals or CFP® professionals in training.
Net Worth Advisory’s mission is to significantly improve the lives of our clients by delivering exemplary financial planning and wealth management advice that enables them to live the lives they have imagined.