Most people spend more than 30 years putting money away each paycheck to use once they retire. So, when it comes time to use that savings, it can be a concern that the funds might not last. Planning and budgeting ahead of time using these five steps can ease retirees into the years when they will need to spend their retirement funds.
Determine Your Priorities For Retirement
While you don’t have to always have an exact plan for what you will do once you retire, it helps to prioritize what is important to you and your family so your retirement plan can support those things. For example, is visiting your grandchildren going to be a large expense once you retire? Do you plan on taking a big trip each year? These things should be on your radar so you can budget accordingly.
Calculate Actual Numbers In The Bank
Make sure you know exactly how much you have set aside over the years and how much you have in the bank to rely on. Advisors can tell you general numbers that you should be targeting for a comfortable retirement, but until you know what is realistic for you personally, you won’t be able to plan ahead.
Understand The Rules Behind Retirement Accounts
There are a variety of rules that impact a person’s ability to use their retirement funds. For example, you are allowed to withdraw funds from your 401K without paying any penalty at the age of 59 and a half, but at age 70 and a half, you are required to take a certain amount out. For a Roth IRA, there is no required distribution, so you can leave your savings to continue growing until you are ready.
lan Separate Budgets For Separate Expenses
There are three major expenses retirees have to plan for— living expenses, health care and discretionary expenses. If you create separate budgets for all three of those costs you will have during retirement, you can better predict where the income is coming from. For many people, fixed expenses such as a mortgage are often paid for with fixed income like a pension or social security.
Keep Your Nest Egg Fully-Funded
Even though you are using your savings to pay for your retirement, it’s still important to continue saving. Most advisors suggest that during retirement, people should have enough cash stored away to pay for expenses for one to two years. Anything above that can be used on those discretionary expenses that are high on your priority list.