Budgeting in retirement is crucial, especially when you live on a fixed income. It doesn't matter if you retire early or you have a late retirement. With careful retirement planning, you make your nest egg last as long as you need it to.
In this article, we discuss how to stretch your retirement savings in order to make them last longer. We cover budgeting strategies and how to make your money work for you.
Making a budget is an important step to ensure your retirement savings last. In short, when you have a budget and spending plan, you can better track and assess the things you need to pay for in life.
With that said, before we delve into more specific money saving tips, let’s explore how to set up your budget in the first place!
The first step to take when budgeting for retirement is to estimate your retirement income. This includes all sources of income, such as pensions, government benefits, and investments. Once you know how much income you'll have each month, you can start making a budget.
There's no one-size-fits-all answer to this question. The amount you need each month depends on factors like your lifestyle, health, tax-costs, and where you live. However, as a general rule of thumb, you can expect to need about 70% of your pre-retirement income.
Once you have an estimate for your retirement income, you can estimate your retirement expenses.
You'll need to account for out-of-pocket costs like housing, food, health care, tax payments, as well as investment or transportation expenses. Remember to include leisure and entertainment expenses. And, of course, you'll need to account for unexpected expenses.
The biggest expense in retirement is often housing. This includes costs like mortgage or rent payments, property taxes, and maintenance. Other significant expenses include food, transportation, and health care.
The monthly cost of health insurance premiums often increase in retirement. This is because you'll likely need to spend more of your income on health care than young people. Knowing your family health history is one of the best ways to guess what you might need to pay down the road.
Another common expense that increases in retirement is travel. So long as you have the income, spending time in new places around the world is great personal care, as it helps you feel more fulfilled in life.
There are a few expenses that tend to decrease during retirement. One is work-related expenses, such as commuting costs, business attire, and income tax. Another is child and family care related expenses, such as education, or your child's wedding.
If you're on a small budget, there are a few things you can do to reduce your monthly expenses and extend your retirement savings.
Here are some tips on how to budget your retirement savings:
You'll want to take a close look at your expenses and make changes where necessary. This may include cutting back on non-essential expenses, such as dining out or travel. It's also important to make sure you are not overspending on housing costs.
In short, you'll want to ask yourself, "Does this help me achieve my financial goals?" If the answer is no, it may not be necessary.
One of the best ways to make your retirement savings last longer is to live below your means. This means spending less than you earn from your pension and saving the difference. When you live frugally, you have more money to live your best possible retirement life.
For seniors who've fully paid their mortgage, downsizing to a smaller dwelling can save a lot of money on things like property taxes, utilities, and maintenance. Since you don't need to go to work, try relocating to a walkable or bikeable neighbourhood. You won't have car payments, and you'll get exercise while meeting people in your community.
Final expense life insurance can help your loved ones cover the cost of final expenses, like your funeral and outstanding medical bills. It is a really good idea to get one of these personal insurance plans, especially if you have debt in your retirement years.
That's because these plans ensure your spouse and family won't inherit your debt (or its rising interest rates) in order to pay for your final expenses. Your benefits could even be used to make charitable donations on your behalf!
At the end of the day, life insurance gives your future the certainty needed to fully enjoy retirement life.
Pensions don't always pay us what we need for spending cash. Here are some ways you can increase the cash you have to spend on what's important to you in life.
With all of the extra time you might have, starting a small business can be a great way to generate income. However, keep in mind new businesses mean new expenses, and new expenses will affect your income and savings. The last thing you'd want is to spend all of the nest eggs saved in your retirement accounts!
That's why another way to bring in some extra cash is to get a part-time job, whether it’s working in a retail setting, food service, or even part-time for your old employer (That is, if they were a good employer!).
Everyone can save money by using coupons and being strategic about where they shop, but this is especially important for retirees who are living on a fixed-income.
Plus, there are often a lot of free or low-cost services and activities available to Canadian seniors, so take advantage of them!
Clubs and groups for seniors often offer discounted rates on things like travel, education, and recreation, so this is a great way to save cash while also meeting people in your community.
Find out if your community has senior gym memberships. Not only do gym memberships help you meet people, but staying active is a great way to reduce health care expenses down the road.
Instead of going out and spending too much of your budget on entertainment, stay home and find ways to have fun for free or very cheap. For example, try calling up some old friends to have a karaoke night.
Another example, reduce your monthly expenses by switching from cable to streaming services.
If you have extra space in their home, you may want to consider taking in a lodger or renting out a room. This can help offset some of the costs of living alone while providing you with a bit of company.
Plus, investing in your home by building a secondary dwelling can significantly raise the total amount of your home's value!
Creating a retirement budget is an important process that will help you make the most of your golden years. By estimating your retirement income and expenses, you can develop a plan that will allow you to enjoy your retirement and stretch your savings.
Creating a budget plan for when you retire helps your life savings last as long into the future as possible. A final expense plan helps you account for the unexpected costs in retirement. That way, you can make your savings last worry-free.
One of our professional advisors is waiting and ready to help you get the insurance coverage you need today!