Guest article provided by: retirecoast.com
Starting to plan for retirement? You need a good budget to ensure that your plan works. Our budget tool will help you make critical decisions. Your key to a successful retirement is effective planning and that requires a budget. Our tool has been designed to help you with the process.
There are many decisions to be made in the planning process. For example, where to live. Do you want to retire in place or move to a beach? Of course, some decisions do not include money but without an effective financial plan, your best ideas may not materialize.
A well-developed budget, one that is thought out will let you know where you are in the process. Should you work longer to increase your savings or retirement income? Will moving reduce your cost of living? Lots of questions can be answered with the right tool. Our free tool you can access from this article should tell you the answers to most of your financial questions.
Your expenses will change in retirement
The budget tool offers cells for you to list all of the expenses you have now or will have after you leave your career/job. First, download this budget tool onto your computer. If you use the online version it will not save your properties. After you have saved it to your computer, make another copy.
Label the first copy something like “current” and the second one as “1st retirement”. This will give you two budgets which you can compare. One for today and another for your retirement later. The tool does permit you to list several physical locations so you can use it that way as well.
Try entering your current expenses in every category. We have even left space for your RV payment. You must put in everything.
The ideal budget
The ideal budget will contain at least 95% of your expenses. The idea is to be as accurate as possible. There are always unforeseen items which are one reason why being conservative is best. If there is an expense not listed in the tool, put it into a cell marked “other” and enter a note. You can enter a note by right-clicking on the mouse.
Consider expenses as those that are ongoing. This includes payments on your car. Of course, some of those payments will go away in the years to come. This budget is not a static thing, it requires attention periodically. You are still working on the budget for your current circumstances.
When you saved two budget spreadsheets, you saved one for now and the other for the date you will retire. You can get into the retirement budget after you complete the current circumstances budget. The expense budget does not inflation factor.
Now for your income
Listing income is a bit more challenging. The object is to ensure that you have listed all income. Starting with your Social Security and defined benefit monthly amounts. The income budget does not inflation factor. If you have income coming from securities such as stocks and bonds, enter it. Do not enter drawdowns from your assets e.g. selling stocks unless it’s on a reoccurring basis.
The point of the income side budget is to look at monthly income to pay monthly obligations. You may retire with one million dollars in your IRA but unless that IRA generates monthly income, it will not become part of your regular income. If you decided to take for example $200 per month from your money market fund, list $200 in the appropriate spot.
After all of your income is added, you will see the outcome. Most people are short of the amount required for retirement. This can be fixed by reducing expenses. If you can not reduce expenses, consider a part-time job to supplement your income.
Relocation can be a major factor
The budget was designed to help people who are considering relocating. You can enter the new location next to the current location to see the difference in expenses. Generally, the income will be unaffected unless you decide to start a business or get a job. If gasoline is $2 per gallon less at the new location and you will travel a lot, this could have a big impact on your budget.
Check the cost of utilities and other things including housing. Some areas are considerably lower in price. The tool can help you decide if you want to move or not. We have not calculated closing costs or other one-time expenses incurred for moving such as a moving company.
Don’t rule anything out in your planning
The point is to not rule anything out when making your retirement decisions. Often the financial aspects will drive the final decision to move. Many people can not retire where they live. A good example is a homeowner in Southern California. They own a house valued at $7,400,000. Their property taxes are only $3,500 per year because they bought the house years ago.
if they were to buy the same house today for the current value, they would pay about $20,000 in property taxes. They could not afford the property taxes on their income. All of their equity is tied up in the house. If they borrow it, they will not be able to make the payment. Selling is their option because the cost of everything else including maintenance on the large house will outstrip their ability to keep up financially.
Start your planning early
Time is your friend or enemy. With time, you can build a fortune. If you wait, time becomes your enemy. Investments compound, this takes time. Plan now for your eventual retirement. Buy your retirement house before you leave your job, just one example of planning early.
Keep adjusting your budget as time goes on. Depending upon the time before retirement, many items and amounts in your budget will change. Do not buy into the myth that you will spend less in retirement. Some expenses will go up. If you are planning when you are raising kids, then expenses can go down.
Medical expenses are something that will increase with age. Medicare is great insurance coverage but co-payments will become a source of expense that may be significant over time. It’s hard to plan for future medical expenses if you are fit and well now. Read articles on the topic to see how your health costs may change.