How to Budget for Retirement

Living on a fixed income as you enter your retirement years has its challenges. That’s why it’s advisable to start doing your retirement budgeting even before you officially leave the workforce so you can figure out where to make adjustments if your anticipated expenditures exceed your retirement income. Budgeting for seniors at least five years before retirement will help give you a realistic picture of your retirement needs.

The first thing to consider in establishing retirement budgets is to accurately asses how long you think your money will last. Start by evaluating your current expenses against your projected monthly income from public and private pensions. A general rule of thumb says you will need 70 to 80 percent of your current annual income each year you are retired in order to maintain your existing lifestyle. If you income is insufficient, calculate how you can make up the difference from savings, investments or property.

Next you will want to consider what expenses will positively and negatively affect your budget after your retirement. For example, you may no longer have a mortgage, car payments or college tuition fees. You may even be thinking of selling your home and downsizing to a small one, which could affect your taxes and utilities. Yet you may lose your health insurance after retirement and you may depend on more prescription drugs.

Consider taxes and inflation in your senior budgeting. Try to estimate how much your money could appreciate over the next few decades due to inflation. Even an amount as little as four percent, for example, could affect your buying power by half over the next 25 years.

You also will want to plan for a long retirement. In the U.S. the average life expectancy is now considered to be 78. You may determine that you need to continue working in some capacity to extend your retirement savings.