We are pleased to present a guest post from Patricia Sanders, a financial writer and regular contributor to debtconsolidationcare.com. Her passion for helping people with financial issues and easy-to-follow financial tips have earned her praise and recognition in the financial community. You can learn more about Patricia Sanders by accessing the bio link in the byline above.

The biggest financial issue retirees face is the prospect of running out of funds. Other pressing issues include deciding what age to begin taking Social Security and whether cash reserves should be invested or used to pay off debts. Still another concern is the amount which may be safely withdrawn from retirement accounts each year.

So many questions for a time meant for relaxation and enjoyment. A good place to start when addressing these concerns is to establish a retirement budget. 

A budget will help you decide how much you can afford to spend, how much is needed to meet your living expenses, and where you might need to tighten your belt or make changes. Having a budget can help you deal with unexpected expenses such as a medical emergency or a costly repair to your home or automobile.

To begin the process of creating a retirement budget, ask yourself these questions:

• How much do I need for health insurance in retirement?
• How many years will it take to pay off my mortgage?
• Am I going to move or downsize my home?
• Do I have enough savings to cover the cost of other items such as home renovation or vacations?
• Am I going to work part-time in retirement, and if so should I invest those earnings or spend them?

When your retirement budget is complete, it will give you peace of mind knowing that many of these questions have been answered. Your budget can become the cornerstone of your financial plan, allowing you to maintain your lifestyle into retirement. With that in mind, let's look at how to prepare a retirement budget.

Step 1: Organize your Financial Documents

It's important to understand your current status regarding your finances. You need to consult your bank records, credit card statements, and any other financial documents that tell the story of your spending habits. Tax season is a great time to do this because you are already accessing that information to do your taxes. Knowing these financial details will help you categorize your expenses and set a budget for each one.

Step 2: Prepare a List of Monthly Fixed Expenses

Next you need to list all of your monthly expenses and organize them into categories. These would include car payments, rent or mortgage payments, insurance, utilities, phone bills, groceries, entertainment, health care expenses, donations, gym membership, and other similar items.

EGGSTACK RETIREMENT PLANNER

Your monthly expenses can be divided into three major categories:

A. Essential Expenses

Examples of essential expenses include:

• Living expenses
• Household expenses
• Family care expenses
• Medical/health costs and insurance
• Car maintenance/transportation costs

B. Discretionary Expenses

Examples of discretionary expenses include:

• Hobbies
• Education
• Entertainment
• Dining out
• Vacations
• Gifts/donations
• Subscriptions
• Gym membership

C. One-Time Expenses

Examples of one-time expenses include:

• Wedding
• College tuition
• Emergency (roof replacement, major car repair, family matter)
• Home renovation
• Funeral

In addition to the expenses outlined above, taxes must be considered. These include:

• Federal taxes
• State taxes
• Local taxes

If all of your expenses are not considered when preparing your budget, it could lead to a big retirement mistake.

Step 3: Factor in Variable Expenses

Some living expenses vary over time such as utility bills due to seasonal changes. Other variable expenses include medical costs, grocery bills, fuel costs, and entertainment. It's difficult to determine exactly how these variations will impact your budget. For items such as these, it's best to use a monthly average which can be determined by totaling a year's worth of expenses and dividing by 12.

Step 4: Determine your Retirement Income

Your retirement income can be determined by adding all of your income sources. These may include Social Security retirement benefits, withdrawals from retirement accounts, interest and dividends from savings and investments, pensions, annuities, rental property receipts, and earned income if you plan to work part-time in retirement.

Step 5: Compare Retirement Expenses to Retirement Income

To get a complete picture of your retirement plan, your retirement expenses must be weighed against your anticipated retirement income. This is where adjustments can be made to ensure that your income will cover your living expenses. 

There are many resources available to assist you with this part of the process. One popular method is to use a retirement calculator. As you evaluate your plan, you may need to adjust your discretionary expenses in order to have more money for investments. It's vital to grow your wealth so you will have the means to support your lifestyle in retirement. 

Step 6: Periodically Evaluate your Plan and Make Adjustments Where Needed

Things have a way of changing, so it's important to revisit your retirement budget periodically to determine if any adjustments are needed. You can check on it as often as you like to ensure that you remain on track. 

A budget serves as a guideline to help you manage your finances, but in order to benefit from it you have to stick to it. If you stray too far by spending money with no regard for the future, you are setting yourself up for financial stress and anxiety. Always keep in mind the type of lifestyle you want to lead in retirement and be willing to do whatever it takes to achieve your goal.

Photo credit: Pixabay Eggstack News will never post an article influenced by an outside company or advertiser. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.