Regardless of the type of retirement income that you are expecting to receive, you still have to consider how you will budget it. If you think that retirement exempts you from budgeting, that is wrong. If there is a time in your life that you need to practice money management, it is when you retire.
The main reason for that is so your retirement money can outlive you. If it is the other way around, you will have a huge problem in your hands. It is difficult to earn more money when you run out of it in your retirement.
There are three usual sources of income after you retire from work: Social Security benefits, retirement plan and your personal savings.
Some people who have failed to take advantage of any retirement plan are usually relying on their Social Security benefits as their sole source of income. Based on an article published on Fool.com, it will be very difficult if you rely on this income alone. The average amount that current retirees are receiving from this agency is a little more than $1,300. That totals to $15,600 a year. It is not enough for anyone to survive.
This is where the second source of retirement income comes in – the retirement plans. Based on the information from the same article, 88 million Americans are currently participating in a plan. The average balance that is currently available to each retiree is estimated at $62,500 – or $2,500 a year. At least this is true if they follow the 4% rule of withdrawal after retirement. This amount is even more pitiful compared to Social Security benefits.
The last source of income for retirees is their personal savings. Now this will vary per retiree. While it is hard to determine how much this can be estimated, it can be assumed that it will not be a huge amount. If people cannot afford to save up for their retirement plan, it is unlikely that they will put aside a huge sum in their savings account.
Given these details, it is evident that a lot of people may be facing some problems when they retire. Although there are several sources of retirement income, it seems unable to meet the financial needs of retirees.
Tips to budget your retirement money
We all know that the best way that you can make your money will outlive you in retirement is to budget it. But when you are working on your retirement budget, there are two things that you need to remember.
Simplify your budget
Actually, if you have the knack of going into details and you enjoy being meticulous about your finances, then feel free to create a budget plan that you will feel confident with. But if you do not want to make things complicated, then you can simplify things. You can use a simple envelop method wherein you will put your cash in labeled envelopes and stick to whatever amount is there. Or you can separate your expenses into major categories and clearly define what you will use it for.
In an article published in BusinessInsider.com, a couple living on $31,000 a year is able to do so because they are budgeting their limited retirement income. Barrett, the 66-year-old retiree featured in the article, said that it is possible to live on a small amount as long as it is all written down. When you write it down, you can figure out what you really need. She and her husband can survive on $2,393 each month. This is the combined income that the couple get from Social Security. Believe it or not, that amount pays for their living expenses plus their credit card debt and a savings program.
The budgeting system that worked for them is the envelope method. This proves that you do not need to complicate things to make budgeting work for you. Find the right budgeting method that suits your personal preference and your retirement income.
Keep an eye on your dwindling funds.
The next thing to remember is to always be conscious of what is left of your money. You need to keep your retirement fund from retiring before you. The only way to make sure of that is to keep an eye on what you have. You need to check how much balance you have left. This is especially true if you had to make a huge withdrawal all of a sudden. This usually happens after a major medical need. Calculate how much you have left every time you make a bug withdrawal. In case your calculations show that you will run out of funds sooner or later, you can still find a way to add more to your income.
You need to be very careful about your spending. Do not blindly spend on things without checking how much you have left. There are factors like the lower interest rate and inflation rate that can affect the balance that you have in your retirement fund. Only you can look after your retirement income so make time to check on it every now and then.
Expenses that can drain out your retirement fund
The thing about your retirement money is that everything will be going out – nothing comes in. Unless you are working in retirement, your money will only go down from hereon. You will probably see a bit of increase because of the profits that your money will earn from retirement plans. However, your expenses will surely be faster than whatever interest your portfolio is earning.
Beyond that, here are other expenses that may be draining out your funds.
- Healthcare costs. This is an expected expense. However, most people are unsure of just how much their health will cost them in retirement. According to a report from HVSFinancial.com, a 65-year-old healthy couple should expect to spend $266,589 for medical-related expenses. This is true for those who are covered by Parts B and D of Medicare and a supplemental insurance policy. If you do not have any, then expect that you will spend more. The data indicated that if you add dental, eye care or other out-of-pocket expenses, the amount will go up to $394,954. If you retire earlier, the amount will rise as well.
- Grandchildren. While you may want to help out your struggling adult children with their own children, you need to be cautious about the financial assistance that you will provide them. Not that you are trying to be heartless or anything. But think about it. If you run out of money and it comes down between you and your grandchildren, your children will probably help out your grandchildren first. So secure your funds before you send your grandchildren money. Even if your adult children promises to return the money, you still need to be cautious. Most of the time, you will not be repaid. If you really want to help, give only what you can afford to lose from your retirement income, nothing more. That way, you will not become a burden to your kids in the future.
- Vacation. Another expense that you need to be careful with are your travel expenses. You deserve to travel and enjoy retirement. But despite that, you need to be careful too. Make sure you only plan for debt-free vacations. Since you have a lot of time in your hands, you can afford to plan ahead. Book everything in advance so you can get a discount. Pay for everything – the travel tickets, board and lodging, and even the tickets for the events or places that you will visit. That way, the only cash that you need to bring with you will only be your pocket money. This should keep you from overspending your budget.
Think about these expenses when you are budgeting your retirement income so you can make the right decisions about them. That way, you can stretch your money to last longer than you.
Here is a video that discusses the common problem that retirees have – how to not outlive their retirement income.
