Retirement means a forever end to the tiring 9-5. However, leaving work completely has its downsides too. This is why experts always say that retirement budget planning is the key to enjoying a good retired life.
Retirement Expenses Need to Be Calculated
Current Expenses
Examine your bank or credit card statements from the last 6 to 12 months and make a list of everything you spent money on. Divide each expense into categories so you can truly understand how you’re spending your money—and whether those expenses will change when you retire. In the next step, we’ll look at some examples of these categories.
Some of your expenses, such as work-related travel and professional clothing, will be reduced once you retire.
You can also eliminate that monthly expense if you pay off your mortgage before retiring.
On the other hand, some of your expenses, such as travel, hobbies, or entertainment, are likely to rise.
In general, retirees spend 70-90 percent of their pre-retirement earnings on maintaining their standard of living each month.
Utilities and Mortgage or Rent
This category includes things like your water, gas, garbage pickup, and electric bills. Include any rent or mortgage payments you make. Expect these basic household bills to cost roughly the same as they do now—costs such as your insurance, car payment, and water bill are unlikely to change significantly.
There are, of course, exceptions. Your power bill may rise slightly if you spend more time at home, for example, or your car-related expenses may fall if you don’t drive as far each day.
Rent, mortgage, and utility costs can vary greatly depending on where you live and the size of your home. That’s why it’s a good idea to look at how much you’re currently spending on those bills.
Living Expenses
In this category, write down how much you spend on things you need for day-to-day living. This includes food, gas and transportation, car and home maintenance, and clothing.
If you need to reduce your spending, this is sometimes an area where you can cut back a little. For example, you could save money on groceries by purchasing meat in bulk and freezing it for later use.
Retirees spend an average of $480 on food and $560 on transportation.
Be honest with yourself about your requirements. Shoes, clothing, and food are necessities, and if your budget too conservatively, you may end up overspending.
Medical Expenses
Examine your bank or credit card statements from the last 6 to 12 months and make a list of everything you spent money on. Divide each expense into categories so you can truly understand how you’re spending your money—and whether those expenses will change when you retire. In the next step, we’ll look at some examples of these categories.
Some of your expenses, such as work-related travel and professional clothing, will be reduced once you retire.
You can also eliminate that monthly expense if you pay off your mortgage before retiring.
On the other hand, some of your expenses, such as travel, hobbies, or entertainment, are likely to rise.
Hobby or Entertainment Expenses
Now comes the exciting part! Consider how much you already spend on things like cable, movies and plays, dining out, and vacations. If you have more time on your hands, it’s likely that you’ll want to do these things at least as frequently as you do now, so budget for them accordingly.
Memberships and subscriptions, for example, should be included. If you intend to take up a hobby, such as golf, include the costs in your budget as well.
Retirees typically spend $200 per month on entertainment.
If you’re struggling to make ends meet, you can cut back on this, but try to include some discretionary spending—you’ve worked hard, and you deserve to enjoy your retirement.
