6 Tips for Creating a Retirement Budget

Reaching retirement is an exciting personal and financial milestone. For many of us, it’s a time to reflect on our goals, lifestyles, and priorities and consider what changes we might want to make as we plan this new chapter in our lives.

Retirement almost always means your streams of income will change, and most people’s monthly expenses also shift somewhat during this time. That’s why creating a new budget is such an important component of successfully transitioning into retirement. Our knowledgeable CERTIFIED FINANCIAL PLANNER™ professionals are here to offer time-tested retirement budgeting tips to help you achieve a prosperous, fulfilling retirement.

1. Maintain an Emergency Fund

Financial emergencies can happen at any stage in life, and retirement is no exception. Whether it's an unexpected medical issue, an economic downturn, or a necessary car repair, a sudden financial issue can lead to longer-term complications if you’re not prepared.

As you approach retirement, building a robust emergency fund can protect you. By setting aside some money for emergencies, you can focus your regular income elsewhere with the peace of mind that you have the funds to get you through tough times if they arise.

2. Think About Your Big-Picture Retirement Goals

Everyone’s idea of a great retirement is different. When preparing for your retirement years, it’s helpful to look beyond the standardized advice and consider what’s truly important to you.

How do you want to spend your time? Are there places you’ve always wanted to visit? Charitable organizations you’re passionate about? Hoping to relocate? At Chatterton & Associates, we believe that your retirement spending and retirement income planning should be customized to your individual circumstances, needs, and wants.

3. Add Up Your Monthly Income Streams

When creating an itemized retirement budget, it’s essential to know exactly how much money is coming in, where it’s coming from, and how much your income might vary from month to month.

Your income may change significantly when you retire. As you add up your income, take note of every potential source, including:

Social Security
Retirement accounts, including 401(k)s, IRAs, and others
Personal savings and non-retirement accounts
Real-estate investment income
Any ongoing part-time employment earnings
Defined benefits plans (traditional pensions)
Annuities

4. Start a Distribution Plan for Retirement Accounts

Some people may be able to live exclusively on Social Security, dividends, interest, and other sources of passive income. However, the vast majority of retirees need to take withdrawals from retirement accounts. The often-cited 4 percent rule – which involves withdrawing 4 percent of your total investment-account balance each year, adjusted for inflation – may be a starting point, but your plan should be customized to your individual needs.

Also keep in mind that many retirement plans, including 401(k)s and 403(b)s, have required minimum distributions (RMDs) that are established and enforced by the IRS. Depending on the year you were born, you may be required to begin making withdrawals from your retirement accounts at age 73 and as late as age 75 starting in the year 2033.

5. Track All Your Expenses

Tracking expenses is absolutely essential when it comes to successfully budgeting for retirement, and it’s important to be consistent about it. There are some helpful budgeting apps you might consider trying, but it’s also a good idea to sit down and list all your expenses manually so you know exactly where your money is going.

As you do this, it can help to separate your expenses into “essential” (needs) and “discretionary” (wants). Here’s an example breakdown of how you might categorize different expenses:

Essential:

Housing (mortgage or rent)
Home insurance/taxes
Utilities
Medical/dental
Auto insurance/maintenance/fuel
Household necessities
Groceries/clothing
State/federal taxes

Discretionary:

Traveling/vacations
Entertainment/subscription services
Dining out
Shopping
Hobbies/lessons
Electronics/toys
Gifts for family or friends
Charitable contributions

6. Consider Working with a CERTIFIED FINANCIAL PLANNER™

Budgeting in retirement is extremely important for maintaining wealth, limiting stress, and enjoying retirement. But, creating a budget that meets your goals is sometimes easier said than done, and budgeting is just one of the essential components of a personalized retirement plan. It’s also important to think about how investments and tax reduction strategies can help you construct a strong financial future.

Working with a CFP® practitioner to create a comprehensive and resilient retirement budget and financial plan can help ensure you reach your long-term financial goals without sacrificing the lifestyle you want.

Let Us Help You Build Your Retirement Budget

Retirement may be the end of your working years, but it’s also the beginning of a brand new adventure. Whether you’re looking forward to traveling, spending quality time with loved ones, relaxing by the fire, or something completely different, the last thing you need is to spend your time worrying about finances.

Careful budgeting and financial planning are tools that you can use to open up new possibilities on your retirement journey. At Chatterton & Associates, we’re honored to help retirees and those preparing for retirement achieve their financial and personal goals. Our experienced CERTIFIED FINANCIAL PLANNER™ professionals are here to listen, understand, and provide personalized retirement planning solutions to help you get the most out of your retirement.

Sincerely,
The Team at Chatterton & Associates