As 2020 nears its end, you’re likely more eager to retire now than ever before! During this tumultuous year, you’ve still been working, day in and day out, just as you have for decades. Often what keeps you going is the knowledge that one day you’ll finally pack up your office (or home office) for good. But rather than eagerly anticipating the golden years of retirement, almost half of all Americans worry about running out of the money they’ve worked so hard to build for so long. (1) Even if this worry isn’t currently keeping you up at night, you likely feel the need to be fiscally responsible in retirement in order to avoid problems down the road.
If you want to stay on top of your finances in retirement, a budget is essential—in fact, it’s the foundation of personal financial management. Today let’s discuss three budgeting tips to help boost your confidence and peace of mind as you enter and enjoy retirement.
1. Identify Flexible Spending Categories
As you build your budget, organize it based on needs. Every single expense should be identified as either fixed or variable and essential or non-essential. For example, your housing expenses are likely fixed and essential. Food is essential, but it is a variable expense. A gym or country club membership may be fixed, but it is non-essential. Other forms of leisure or travel are likely variable and non-essential.
Knowing which expenses are necessary and which are flexible can give you incredible peace of mind. If you’re used to spending $8,000 a month, once you sort your expenses and discover that only $4,500 of them are truly necessary, it relieves a lot of pressure.
It also allows you to make wiser financial decisions and adjust better to market conditions. If we enter a bear market and your portfolio is down, you can cut spending back to cover the necessary expenses you identified. Maybe you put off that big trip or eat out less. This can potentially keep more of your money invested so you can be better positioned if and when the market bounces back.
2. Plan For Taxes
Unless all of your money is in an after-tax account or Roth IRA, you will have to deal with taxes in retirement. Having your mortgage paid off before retirement is a common—and excellent—goal. However, don’t make the false assumption that no mortgage equals no payments.
Part of your monthly mortgage payment may be going toward property taxes and homeowners insurance if you escrow. Don’t forget that you still have to pay these bills when your home is fully paid off, and it’s important that these figures be included in your budget. Keep in mind, these numbers will be inflating over time as well. One way to handle property taxes and homeowners insurance in retirement is to set aside money on a monthly basis, just like you did with your mortgage, so that you have the funds when those bills are due.
Property taxes won’t be the only taxes you will owe in retirement. Distributions from 401(k)s and IRA accounts will most likely be considered taxable income. Even your Social Security benefits may be taxable, depending on your overall income. It’s critical that you are withholding and paying the proper taxes so that you don’t get into a large tax bill situation. A competent tax preparer can help you with this.
3. Work With A Professional
It’s not enough to work with just a tax preparer during retirement. Be sure to work with a competent financial planner as well—it can make the difference between a retirement marked by fear and stress (like the 49% of Americans mentioned previously) and one of confidence.
Yes, it’s wise to have a financial professional help you with your investments during this next stage of life—but don’t stop there. You need your professional to help manage not only your money but also your entire financial life.
Our team at Wurz Financial Services will help you develop a comprehensive financial plan that includes your short-term and long-term goals, a sustainable budget, and a general road map to help you navigate retirement. To learn more about what it’s like to work with a professional who cares more about your life than your investments, contact us at 859-291-9879 or email@example.com today. And during your no-obligation consultation, let’s find out if we’re the right people for you to depend upon during your journey to a comfortable retirement.
Also, join us at one or both of our free webinars:
- Social Security 101: The 3 Rules To Maximize Your Lifetime Retirement Benefits!
- Will I Have Enough To Retire?
Darren Wurz is a co-owner and financial planner at Wurz Financial Services, an independent, family-owned and operated financial services firm dedicated to helping its clients transition from their working life to a comfortable retirement with confidence. Darren received his master’s of science degree in financial planning from Golden Gate University and also holds the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation. He operates the Northern Kentucky/Cincinnati office of Wurz Financial Services and is an active member of the Covington, KY rotary club, the Northern Kentucky Chamber of Commerce, and the Covington Business Council. To learn more about Darren, connect with him on LinkedIn.