If you’re like most Americans, you probably feel like you haven’t saved enough money for retirement. Making a budget can be the best method to ensure you don’t outlive your money. While you may no longer have an income from a full-time job, managing your finances isn’t that much different in retirement. You should be able to find effective cost savings to ensure longevity and prosperity for you and your loved ones.
Step 1: Add up any income you’ll receive in retirement
When making a budget, start with the amount of money you’ll receive every month. Even though you’re retiring from your full-time job, you will most likely have multiple sources of income in retirement, such as pension plans and/or social security benefits. If you’re not sure if you’re eligible for social security benefits, you can determine what, if any, benefits you qualify for by using our free Social Security Calculator.
Step 2: Count Your Retirement Savings
All those years of retirement contributions will now pay off. Calculate how much you have in your 401K’s, your IRA’s, and your Savings Accounts. You can read more about how to handle the funds in your 401K by reading this article.
An often suggested rule is to take 4% of your savings per year when you first retire. Assume you have $1,000,000 saved when you first retire. In this case, you would take out 4% for a total of $40,000. You’ll continue to let the remaining $960,000 gain interest and value in investments. The following year you’ll take the same amount (adjusted for inflation). At this rate, your savings will last approximately 25 years. Of course, the 4% is just a suggested figure. The real answer is that you should take as much money as you’ll need.
Step 3: Add Alternate Forms of Income
Just because you’re retired doesn’t mean you need to stop working. There are many great opportunities for low stress jobs available to retirees. Part-time work is a great way to stay active and increase your income.
Do you have property collecting rent? Could you consider downsizing and renting out your current property? Add all of these alternate forms of income to your monthly estimates.
Step 4: Make Your Retirement Budget.
How do you calculate how much will you need during retirement? One way to piece together this information is to check your bank and credit card statements. Many banks and credit agencies offer annual reports including categorized breakdowns of all your expenses. You can use this information to come up with a general budget for what you will need.
Consider addressing the following in your budget:
- Dining Out
- Expenses for your family
- Emergency Fund
In the end, many like to leave a legacy for their family. With proper budgeting, this can be possible. Plan ahead and your money can last a lifetime.