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March 17, 2022

How To Create A Free Retirement Budget

Are you worried about your retirement? You're not alone! Retirement planning can seem daunting, but it doesn't have to be. In this blog post, we will discuss how to create a free budget for retirement. We will go over different strategies that you can use to figure out how much you spend which in turn will help you know if you have saved enough for retirement. Don't wait until it's too late - start planning your free retirement budget today! Click here to sign up for free.

How Much Money Will You Need To Live Comfortably?

When it comes to retirement planning, the first step is to estimate your retirement expenses as this will help you understand if you can afford to retire and have saved enough to live comfortably. This can be tricky, as your needs may change over time. However, there are a few things that you can do to get an estimate. First, consider your current lifestyle and expenses. Next, think about what you would like to do in retirement. Do you want to travel? Downsize your home? Make a major purchase? These are all important factors to consider when estimating your retirement costs.

What Is A Reasonable Budget For Retirement?

A rule of thumb is that your retirement budget will be 80% of your pre-retirement spending. So, if you currently spend $100,000 per year, your retirement budget should be $80,000. However, it is not uncommon for a budget to be higher in the first several years of retirement during what is commonly known as the gogo years of retirement. Now that you have more time it can be easy to spend more which is not necessarily a bad thing. The reason you saved the money in the first place was so that you could enjoy it. The key is understanding how much you can spend without running out of money in retirement. You can use the Retirement Budget Calculator to create a realistic retirement spending plan.

What Are The Average Monthly Retirement Expenses?

The average monthly retirement expenses can vary greatly depending on your lifestyle. If you plan to travel often, your expenses will be higher than someone who plans to stay at home. Additionally, if you own a home, you will have to factor in things like mortgage payments, property taxes, and insurance. Other common expenses include food, transportation, and healthcare. In a report published in 2016, The Bureau Of Labor & Statistics found that people aged 65-74 had a pretax income of $52,366 and total annual expenditures of $48,885. But this was based on a consumer survey from 2014 and now in the year 2022, we are experiencing high inflation. The BLS.gov reports that income and expenses vary with age and decline significantly after the age of 75.

Retirement Budget Worksheet

Microsoft Excel and Google Sheets can be great tools for creating retirement worksheets. You can use Excel or Sheets to track your current expenses, as well as your projected expenses in retirement. This will help you get a sense of how much money you will need to save. The Retirement Budget Calculator was originally designed as a spreadsheet but as the formulas grew more complex we found it would be easier to create an application that would make budgeting easier for most people.

Excel and Sheets can be great tools but in the Retirement Budget Calculator we have already figured out all of the formulas so that you can focus your time on entering your data rather than worrying about if you made a mistake in a formula.

Retirement Budget Categories Example

Essential vs Discretionary Monthly Expenses

Once you have an idea of your retirement costs, you can start creating a budget. Start by evaluating your current expenses and income. What are your essential monthly expenses? These are the costs that you need to cover to maintain your current lifestyle, such as housing, food, transportation, and healthcare. On the other hand, discretionary expenses are not essential and can be cut back if necessary. These include costs like entertainment, travel, and dining out.

Essential Vs. Discretionary Monthly Retirement Budget

Retirement Budget Planner Template

We created the budget planner template so that all you will need to do is enter your information. Within the budget worksheet, we have 7 primary categories and within each category, we provide you with a template of many of the common expenses you will want to consider. You will be able to customize and add expenses within each category so that they are unique to you.

  1. Housing
  2. Loans & Liabilities
  3. Food & Personal Care
  4. Insurance & Medical
  5. Vehicles and Transportation
  6. Travel & Entertainment
  7. Giving & Miscellaneous

Total Expenses

We have found that it can be easier to think about your total annual expenses, rather than breaking it down for each monthly expense. For example, maybe you know that you will want to spend $70,000 per year. Instead of entering detailed information for each monthly budget expense, you could simply make one monthly expense called "All Expenses" and enter it as $5,833 which is the equivalent of $70,000 per year. This could be a faster way to use the calculator to see if the money you saved is going to last throughout your retirement.

Monthly Budget

Spending from month to month is not smooth. Many expenses happen every month but others such as property taxes or insurance premiums may only occur once per year or semi-annually. To create a good retirement budget you will want to account for all expenses and the timing of these variable monthly budget costs. Some insurance premiums are paid semi-annually. We have seen where people pay for garbage or water every other month. There is an ebb and flow to spending and the calculator can help you be precise when estimating retirement expenses.

Calendar view of Monthly Retirement Budget Income and Expenses in the Retirement Budget Calculator

Health Insurance Premiums

If you are still working, you may be able to continue your health insurance through your employer for a limited time after you retire. Once you are retired, you will likely need to purchase health insurance on your own. The cost of health insurance can vary widely depending on your age, location, and the type of coverage you need. Under the affordable care act, you might be able to receive a significant subsidy on your health insurance premiums in the years before you turn 65. The Affordable Care Act subsidy is a result of your modified adjusted gross income. If you are taking income from sources such as bank accounts, nonqualified brokerage accounts, and ROTH IRA's you might be able to keep your taxable income low resulting in higher health insurance subsidies. Here is a link to a health insurance marketplace calculator to help you estimate the affordable care act subsidy.

Once Medicare starts you will need to estimate premiums for Part B, Part D, and any Medigap policies. The cost of these can vary depending on your retirement income. In 2022 Medicare Part B premiums for most people are $170 per person per month.

If you are in good health, you might be able to get by with a less expensive health insurance policy that has a higher deductible.

Health care and health insurance can be one of the biggest expenses for people in retirement.

Taxes

Just because you are retired does not mean you get to stop paying taxes. In retirement, you will likely be taxed on any income you receive from pensions, retirement accounts, and other investments. In the retirement budget calculator, we run your income through our tax estimator. We even do the complex provisional income calculations so that we can determine how much of your social security benefits will be taxable. In some states, property taxes are low, but in some instances, they can be very high. You will want to understand property taxes if you are considering relocating in retirement. When you are calculating how much income you will need in retirement, be sure to include an estimate for the income tax you will owe. You might also want to consider relocating to a state with lower taxes.

Retirement Income

The next step is to determine how much income you will have in retirement. Some people like to calculate this figure based on their annual income, but it's more realistic to consider monthly income. There are a few different sources of retirement income, such as Social Security benefits, pensions, rental income, 401(k)s, and other retirement plans such as IRA or ROTH accounts. You will also want to add up all your non retirement accounts such as savings and checking accounts, bank accounts, and brokerage accounts. You will need to estimate how much money you will receive from Social Security and pensions and then the Retirement Budget Calculator will calculate how much you will need to withdraw from your retirement accounts to make up for the shortfall between your retirement income and expenses. Additionally, think about whether you will continue working during retirement. If so, how much income can you expect to earn?

How Long Does Your Money Need To Last?

The average life expectancy in the United States is around 79 years. In the calculator, we will use the Social Security life expectancy tables to estimate your life expectancy based on your current age and gender. You will want to be careful using these estimates because they are just averages which means 50% of people will live longer. The other tricky thing about life expectancy is the longer you live the longer you are expected to live. For example, a male age 45 has a life expectancy of 79.1 but a male age 65 has a life expectancy of 82.9 years and a male age 75 has a life expectancy of 86.2. Alternatively, you can make a hereditary adjustment if you know that everyone in your family lives to age 95 and you will want to override the averages with a more realistic estimate for your specific situation.

Inflation

Certain expenses will increase with inflation. While others will not. For example, a mortgage payment is made up of principal interest taxes and insurance. You will want to assume your property taxes and insurance is increasing with an inflation rate over time but the principal and interest is a fixed amount that will end in the future.

Cash-Flow

Retirement is all about cash flow. It is about making sure you have saved enough annual income to support a lifetime of annual spending. By understanding your spending and life expectancy you can begin to estimate if you have saved enough to retire now or if you will need to work longer. Will your savings and investments be enough to last your retirement?

Don't Delay Start Today

Don't wait - start planning your free retirement budget today! Sign up for free to use the Retirement Budget Calculator. This tool will help you estimate your retirement income and expenses and figure out if your retirement savings will be enough to last your lifetime. Don't let uncertainty about the future hold you back -get started today!

Sample Retirement Budget

In the video below, I will show you a very simple retirement budget and how you can use the calculator to help you answer the question "When Can I Retire?"

In Conclusion

Creating a retirement budget is an important step in the retirement planning process. By using the Retirement Budget Calculator, you can get a better understanding of your retirement income and expenses and figure out if your retirement savings will be enough to last your lifetime. So don't delay - start planning your free retirement budget today!


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