Don’t Outlive Your Money: 3 Retirement Budget Tips
By Scott McCord, AAMS®, BFA™
They don’t call them the golden years for nothing. Traveling, taking up new hobbies, spending more time with family—what could be better? But rather than eagerly counting down the days until retirement, almost half of all Americans worry about running out of money after they’ve reached this milestone. (1) Even if you’re not feeling worried as you approach your career finish line, 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, as the foundation of personal financial management, a budget is essential. Here are 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 homeowner’s 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 homeowner’s 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
A tax preparer isn’t the only financial professional you’ll want on your team during retirement. A competent financial planner can make the difference between a retirement marked by fear and stress (like the 49% of Americans mentioned previously) and one of confidence.
The closer you get to retirement, the more you’ll find investment advisors who want to work with you and manage your money for you. Yes, it’s wise to have a professional help you with your investments, but more than that, you need a financial professional who will help you manage your entire financial life (not just your money).
At Anthem Financial, we 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. We want to see you not just survive this next stage of life but thrive. To learn more about what it’s like to work with a professional who cares more about your life than your investments, schedule a free introductory meeting online today!
Scott McCord is founder and Investment Advisor Representative at Anthem Financial, providing values-based financial advice as a fiduciary. With over 20 years of experience in the financial industry, Scott focuses on building long-term relationships with his clients so he can understand their unique values and guide them through the ups and downs of their financial lives, keeping them focused on their short-term and long-term financial goals. Scott has a bachelor’s degree in business management and accounting and holds the Behavioral Financial Advisor™ (BFA™) and Accredited Asset Management Specialist (AAMS®) certifications, the Series 7 and 66 licenses, as well as life, health, and disability income insurance licenses. Scott is married to his intellectual and spiritual ally, Heather, and together they have two beautiful children, their daughter, Meyer, and their son, Grady. When Scott is not focusing on his clients and family, he volunteers his time on the Peoria Public Schools Foundation board, Impact Peoria board, and Rotary of Downtown Peoria board. To learn more about Scott, connect with him on LinkedIn.
Investment Advisor Representative of and advisory services are offered through Independent Wealth Network, Inc. a Registered Investment Advisor. Anthem Financial is not affiliated with Independent Wealth Network, Inc.