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How To Create a Retirement Budget

Cassandra Kirby, Partner, COO, CCO of Braun-Bostich & Associates

Creating a retirement budget is an important activity for retirees and pre-retirees to consider. At the onset of retirement, it’s hard to know what you’ll need, as your lifestyle will change and you will find yourself with more free time to explore hobbies and other activities, like travel; however, having a road map of basic and ongoing needs, as well as assumed discretionary spending, is crucial to maintaining a safe drawdown on your portfolio over time.   

Benefits of having a retirement budget include:

  • An initial blueprint for spending 
  • Peace of mind knowing where you stand from a cashflow perspective
  • The ability to see where you are spending most of your budgeted income at a quick glance while also having the ability to see where you could afford to potentially spend more should a risk or opportunity present itself

On average, most people spend less in retirement than during their working years. For planning purposes for clients with many years until retirement, at Braun-Bostich & Associates, we typically assume they spend 85% of their current annual basic living needs throughout retirement, excluding savings and loan payments. Historically, somewhere between 4-6% of your portfolio’s value has been considered a safe annual drawdown. For example, if your principal investment is $1,000,000, drawing between $40,000 and $60,000 per year from your investments would be considered safe. Remember, these are assumptions only.

There have been many planners and financial planning professionals that consider a rules-based approach, where you take into consideration your basic spending needs but also account for given certain occurrences in the portfolio or the economy, for example, larger than normal gains or losses, or significant changes in inflation – then you adjust your budget or your spending for the following year to account for that, which could allow you to draw more or less from the portfolio.

Here’s how to get started creating a retirement budget:

  • Determine your sources of income in retirement:
    1. Will you and/or your spouse have monthly pension income?
    2. How much will you and/or your spouse be able to collect in Social Security income each month?
    3. Consider any annuities you own that may have guaranteed income options
    4. Do you have any other types of income like rental income, royalty income, or income from a business interest?
    5. Total your income sources
  • Determine the total of your retirement savings:
    1. Do you and/or your spouse have IRAs/401(k)s?
    2. Do you have any annuities?
    3. Do you have any regular brokerage account holdings?
    4. Do you have any stock certificates or book-entry stock shareholdings?
    5. Add these figures and consider what you can expect to earn on them on a monthly/annual basis – remember 4% is a safe assumption
  • Begin to construct your budget:
    1. Go through your monthly spending and make a list of each item as an essential or non-essential expense
      • Essential expenses would include your mortgage payment, your utility bills, food/groceries, etc.
      • Non-essential expenses would be things you spend discretionary income on, like getting your nails done, going out to eat, having your car washed each week, etc.
    2. Add up the essential expenses – this is the minimum you will need for basic living in retirement
    3. Add up the non-essentials
    4. Consider new expenses:
      • What will healthcare costs in retirement look like for you?
      • Consider how your federal/state tax liability may change in retirement
      • Do you have any additional considerations like gifting to children or grandchildren?  Moving?   Large travel plans?
  • Bringing everything together:
    1. Total all sources of income in retirement monthly
    2. Total all your retirement assets and multiply by 4% for a base figure and divide by 12
    3. Subtract your total monthly essential needs, non-essential needs, and any new expenses you are planning for monthly
    4. Do you have money left each month or not?  

Planning for retirement can be exciting and overwhelming at the same time. Proactively building a sound retirement budget is a great way to prepare for what’s to come and to give you the confidence to enter retirement knowing where you stand from a cash flow perspective.  

As always, if you have any questions about your retirement plan, budgeting for retirement, or any of this information, please do not hesitate to reach out.

Cassandra Kirby, Partner, COO, CCO of Braun-Bostich & Associates


To discuss this content further or to ask any financial-life question you may have, we encourage you to reach out to us at 724.942.2639 or schedule a FREE/no-obligation time to chat with an advisor at your convenience.  

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