Whether you're in your 20s or 40s, it's not too late to start budgeting for your retirement. You don't want to wait until you retire to create a retirement budget. You should figure out how much money you'll need based on your future expenses such as housing, utilities, groceries, and transportation. Even if you're already retired, it's still a good idea to budget your retirement income to avoid running out of it. Here are ways you can budget for retirement.
Take Inventory of All Sources of Retirement Income
The first step is to take inventory of all sources of your future sources of retirement income. These sources include:
- Dividend income from your current taxable investment account
- Income from retirement accounts such as Roth IRA, traditional IRA, and 401K plan
- Profits from your business
- Emergency savings
- Social Security benefits
You want to write down the amount of cash you have in each of those accounts and also figure out how much certain investments might grow in the years leading to your retirement. Use this time to boost the income in certain investment accounts so that when you retire, you'll have enough to live off of. Maybe you can sell things you don't need for profit or even get a second job to increase your investment income.
Gather Your Debts and Pay Them Down
You should also gather all your debts and pay down as many as possible. This frees up more of your money and you can build your retirement income more effectively. Contact your creditors and create a flexible payment plan for each of your debts. Once you do this, open any new unnecessary lines of credit that you can't afford.
Consider Your Fun Expenses
You don't want to spend your retirement income on just your essentials. You should also budget for the fun ways you'll enjoy your retirement. These include travel expenses, expenses for eating out, subscriptions, clothing, and expenses associated with new hobbies you start after retirement. If you're starting a blog or another online venture, then budget for expenses associated with it such as hosting services and marketing tools.
Don't Forget About Healthcare Expenses
As you get older, you'll experience more health issues. This could mean higher healthcare expenses in retirement. If you plan to retire before age 65, then you can obtain health insurance through the government's Marketplace website. On this website, you can compare different health insurance providers to find one that best suits your needs and budget. If you're over 65, you should budget for Medicare premiums since they account for a chunk of your healthcare expenses. If you currently have a health savings account, you can't make additional contributions after enrolling in Medicare, but you can use the money you saved in this account for medical expenses.
Downsize if Necessary
If necessary, you may need to downsize in order to maximize your retirement income. If the kids all live on their own, you can sell your current home and move to a smaller and more affordable one. You can trade in your current car for a less expensive yet reliable one. Slash your grocery budget by cooking enough for just you and your spouse to cut down on food waste.
These strategies can help you plan an effective retirement budget.