Give Your Retirement Budget a Test Drive

When we make major financial decisions, we tend to conduct a bit of research first. Car dealerships allow you to test drive their vehicles, you visit a home several times and thoroughly inspect it before buying, and so on. We usually don’t even purchase clothes without trying them on first! So when it comes to the biggest financial decision you might ever make, it definitely makes sense to try it out before committing.

We’re talking about your retirement budget. One of the scariest things about retirement is the idea of taking a leap into unknown territory, but that’s not really necessary! You can take these steps now, to get an idea of how life will feel on your expected retirement budget.

Step One: Set your budget. Your retirement budget will likely amount to a bit less than your current salary. Let’s say, for the sake of this theoretical scenario, that you’re looking at living on 70 percent of your current income.

Step Two: Analyze your spending. Where does your money go each month? Understanding this is the key to figuring out how to live on your new budget.

Step Three: Compare pre-retirement and post-retirement budgets. Some aspects of your current budget will certainly change once you reach retirement. For example, if you currently spend a lot on gas, parking fees, and other expenses associated with a long commute to work, you can safely assume those expenses will decline when you reach retirement. The same goes for work clothes and other professional expenses.

On the other hand, you might wish to spend a bit more on recreation or travel once you retire. And, you might expect for your living expenses to change significantly, if you plan to move after retirement. Compare both budgets side-by-side to see how they will differ.

Step Four: Test drive your new budget. Because you’re still working, you won’t be able to precisely adjust to your retirement budget. Some things you can’t change right now, such as your commuting expenses. But you can eliminate any optional, additional expenses, and reduce your overall spending to match that of your retirement budget.

Step Five: Divert those extra funds to savings. While you’re giving your expected retirement budget a whirl, take advantage of the opportunity to save more. Divert the “leftover” funds each month to your savings vehicle, or use it to pay off debts.

How does it feel to live on a bit less income? If you need help analyzing your expected retirement budget, or you feel concerned and want to discuss ways to generate additional income, give us a call. We can help you address your retirement income dilemmas.