Worried about having enough money saved to retire comfortably? Anxiety often stems from a lack of preparation but financial planning can ease those concerns and increase your confidence. Help your savings go the distance with a plan.
How to Plan a Retirement Budget
How do you plan for retirement success? Proper retirement planning requires taking an honest look at your income, current and future expenses, and retirement budgeting best practices to ensure you’re on the right path.
Start planning a retirement budget with these steps:
- Determine your current expenses, including monthly bills, annual or irregular expenses, taxes, debts, travel, and savings contributions.
- Estimate future expenses, like healthcare bills, housing and maintenance costs, and travel.
- Tally up your current income, including combined salaries, interest, capital gains, dividends, rents, and tips.
- Estimate retirement income, including Social Security, retirement savings allotments, and rents.
Knowing your numbers is the first step to planning. Accurate numbers into a plan means accurate numbers out of the plan.
One common way to calculate your available retirement income from your investments is to use the 4% sustainable withdrawal rate method. How to do this? Divide your estimated investment balance by 4% (0.04) to find out how much retirement income you’ll have from your investments that year. If that number is taxable and you know your effective tax, multiply again by 1 – your effective tax rate. If you’re not sure what your effective tax rate is but know your investments are taxable, multiple by .8 (a 20% tax rate).
Divide that annual number by twelve to get a monthly income amount.
Add your expected household Social Security benefit amount and any other sources of income (pension, annuity income, rental income, earned income—any other income you plan to receive in retirement after taxes are paid on that money). That’s how much available income you expect to have each month.
Now take your estimate of monthly retirement expenses. Will you have enough monthly income to cover your monthly expenses?
Tips for Helping Your Savings Go the Distance
With adequate financial planning for retirement, you can ensure your savings go the distance and help you maintain your standard of living beyond retirement.
- Investment Strategy: You may have questions about how your money is invested. Just because you’re retiring soon doesn’t mean you should be out of the market. It’s the market that’s going to help your money maintain its purchasing power in the face of inflation. You may live for decades so you can take risk with money you don’t need as income right now.
- Reliable Income Options – There are ways to set up short-term income that’s reliable and not subject to market risk while still being invested for growth with your long-term money.
- Tax Strategy – Know which of your money is subject to tax and have a strategy to minimize that tax. Tax is complicated. We can help explain what you have and can design a tax strategy so you don’t have to pay Uncle Sam any more than the amount to which he’s entitled.
- Debt Management – All your debt is not the same. Some may be more expensive than others. Let’s look at what you have and determine if we can create a strategy that saves you interest and paves a way for you to get out of debt so it doesn’t burden your retirement.
- Critique Expenses – You know the saying: “A penny saved is a penny earned.” Well, any dollar we can help you save or substitute for less entering retirement may be multiplied by 12 months x your life expectancy. You may be surprised what you’re paying for and what you can save!
- Claim Social Security Benefits Strategically: Waiting until age 70 to draw Social Security payments increases your monthly payment amount. If you’re married, divorced, or working, there are different strategies you might use than if you’re single. You should have a strategy to claim your benefit instead of claiming blind and possibly “leaving money on the table”.
You may have accumulated a lot of resources over your working years. All those different accounts may not make sense to you. We help people retire every day, explaining what they have and offering ways to simplify their financial life. Isn’t that what you’re looking for? A retirement that’s efficient, that you understand, and have confidence pursuing?
Common Mistakes with Retirement Planning
What are common mistakes with retirement planning?
- Mismanaging Your Retirement Plan: You retire once. Will you make costly mistakes with each of the first-timer decisions you’ll encounter? Why risk that?
- Not Planning for IRMAA: Medicare has a surcharge on Parts B and D. Did you know that? The more you report as income in retirement, the more you may need to pay each month for Medicare. You may be able to avoid getting caught by those surcharges with a financial strategy.
- Borrowed Money From Your Plan?: Let’s design a strategy that manages and relieves you of unnecessary loan interest and unbending payment obligations. We understand you may have borrowed to meet past needs but it’s time to clean your liabilities so you can enter retirement with a few liabilities as possible.
- Underestimating Life Expectancy: The average lifespan is around 77.5 years in the U.S., but at least one member of a 65-year-old couple has a 50% chance of living to age 93. Retiring at the average age of 61 means you could need savings to last 30+ years. You just “might” live to a ripe old age so plan for “might”.
Financial Success in Your Later Years
Retirement budgeting doesn’t have to be stressful. Use the guidelines presented here to help you get a clearer picture of how retirement ready you may be. Then, figures and accounts statements organized, you can discuss strategies to help enhance your retirement readiness with a financial advisor/planner.
A MyStages® retirement consultant can help you create a strategic roadmap for your financial journey now and through your retirement years.
