How to Calculate Your Retirement Budget

By Randall Orser | Budget

Making a budget for your retirement will help to alleviate stress in your golden years and will help you to avoid spending your nest egg too soon.  Things that will affect your retirement income include inflation, rate of return on your investments, your retirement date, taxes, spending, part-time earnings and pension payments.  With a budget you will be able to make smart choices about your life in retirement that might allow you to retire earlier if you want to. 

Before starting to create your budget, you need to have your last 6-12 months of bank statements, 6-12 months of credit card statements, your last two pay stubs and those of your spouse if you are both still employed, and last year’s tax return.  Review the transactions on your bank and credit card statements and track where you have spent your money over that time.  

Group your expenses into these five categories:

1. Fixed Expenses - list all your recurring monthly, quarterly or annual payments.  These can be broken down into three parts;

  • Essentials such as food, clothing, housing, transportation and health care. 
  • Non-essential monthly payments such as tv cable and streaming, gym memberships, subscriptions and any other items that you are billed for.
  • Required monthly or non-monthly expenses such as property taxes, insurance premiums, auto insurance, and cell phone bill.

2. Health Insurance - If your employer has been paying for your health insurance  you might have to pay it yourself when you retire.  It's a good idea to shop around for the best plan for you before you retire so that you can add an estimated monthly charge to your budget.

3. Optional Items - this includes all the fun things such as travel, outings, entertainment and hobbies.

4. Plan how you will spend your time - if you have expensive hobbies, you need to budget for them.  Consider ways in which you can reallocate money from things that are less important to items that are more important, such as downsizing your house to pay for travel.

5. Calculate fixed vs variable costs - by totalling all your fixed expenses and non-fixed expenses separately then dividing your fixed expenses into the total expenses.  You will then know how much of your retirement fund will need to go towards fixed expenses and how much you will have left for other things.  If it doesn't look like enough for travel and other fun things you might have to consider a lifestyle change such a not paying huge house and car payments.  

The bottom line is that if you want to have more fun in your retirement, you have to find ways to lower your fixed expenses so that you have more to spend on the interests that you enjoy.



About the Author

President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.