When I retired last summer, one of the first things I did was to recreate my budget. Things look a little different when you retire - your income usually changes, so your expenditures need to change also. While talking “budget” with my already-retired friends, one thing is a definite - everyone has a different idea about how to create a budget. The important thing is to create a budget that works for you as long as you know where your money is going, you don’t have to “rob from Peter to pay Paul” (at least not too often), you allocate enough to achieve your goals, and it’s user-friendly. Of course, it is assumed that you have met with your financial advisor and you all are in agreement that you are financially ready to retire.
Some people do better with expenditures that are extremely detailed: food, insurance, entertainment, and so on… Others prefer to make it less tedious and chunk expenditure items into just a few major categories: House/Car/Travel/Savings and Investments/Medical/All other expenditures.
There are a number of things to consider when you retire with regard to your financial goals:
a. Do you want to buy a 2nd home?
b. Is your main home in need of repair or updates?
c. What are your travel goals?
d. How much do you want to put away in savings and/or investments each year?
e. What is your plan for allowing for inflation?
For me, two things that had to happen before I retired were to have the house paid off and the kids through college. After that, I definitely wanted to have a few years to breathe and do some hardcore saving before retirement. It certainly helps to have a timeline in your head of where your retirement falls into place with regard to your large financial responsibilities. Although it may be tempting to wake up one morning and retire out of frustration from your job or from watching many of your friends retire, it’s not a good idea to retire without a clear plan after consulting with a financial advisor. For me, retirement was planned perfectly - right after our children got married and right before our grandkids started to arrive!
Remember when you are creating your budget, although you will probably save money in commuting costs and expensive clothing, you may be spending more in new (and sometimes very expensive) hobbies. Also consider that many medical plans during retirement do not include dental, may have higher out-of-pocket expenses than you are used to, and if you are on medicare you will most likely have to pay a premium for Part B, so allow extra cash for those expenses.
Remember - continue to re-evaluate until you get it right and have fun!
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