Whether you're simply looking ahead years down the road to retirement or if you are already in retirement, it's important to have a good handle on your finances. Without a job and with some expenses likely increasing (such as medical bills), a good budget is a must for anyone facing retirement or already retired.
Have a Budget
A budget tells you where your money should go, based on your expenses and goals. Without a comprehensive budget, you may find your savings dwindling quickly. While it may feel like retirement is the time to blow your money on the things you've always wanted to buy, it's also the time to think long-term; your money may need to last you for a long time.
Know where your income comes from, and how much it is. Without this fundamental knowledge, you can't have a successful budget. Include all income sources in your budget, including:
- Retirement pay or pension
- Dividends from retirement savings, investments, or annuities
- Pay from a part-time job
- Disability payments
- Social Security benefits
Your expenses may change upon retirement. Costs associated with working will lessen (transportation, wardrobe, lunches out) while expenses associated with recreational activities may increase now that you have the time. Medical expenses may increase as you age. Be realistic when you assess your expenses to not only include your typical bills and monthly obligations but also for all the things you want to do in retirement.
Make Good Housing Decisions
Having a safe place to live is important in any stage of life, but in retirement it's important to live somewhere affordable with access to friends, family, and necessary services like medical care and transportation. The best places to live in retirement have ample, sufficient housing for retirees that won't break the bank.
Choosing a Location
While climate and scenery are certainly important considerations for retirement living, affordability should be a huge consideration. And not just monthly housing costs, but also the cost of living of the location. If you're relocating in an attempt to downsize for retirement - even if you're moving somewhere with a lower cost of living - take into consideration the costs associated with moving when budgeting for housing.
In retirement, many homeowners consider getting reverse mortgages as a means of income or for a lump sum of cash. There are potential disadvantages to reverse mortgages, one of which is a reduction in your estate for your heirs. But for retirees who have a paid off house and need income, a reverse mortgage can be a solution.
If adult children still rely on you for financial support, it may be time for a frank discussion. Analyze how much of a financial impact your child living with you causes, or how much money you send your child to "help out." Is that money the difference between a comfortable retirement and a strained financial picture? It may be time to cut the purse strings, or at the very least, to ask your adult child to start contributing to paying expenses instead of being an expense.
Go Back to Work
When the problem is a lack of income, bringing in more income can be a solution. Even something like a part-time job can help ease the stress on a retirement budget.
Most communities have programs for retired people that can help take some of the burden off your budget. Free transportation, free training, and reduced utility costs are just some of the programs you may be able to sign up for when you reach retirement age. Find out what your community offers and take advantage of the programs for which you qualify.
Revise When Needed
Everyone - retired or otherwise - should be willing to periodically review their budget and make changes as needed. It's rare for the first draft of a budget to be the one that works forever. The important thing is to be willing to revisit the budget as many times as necessary in order to achieve the lifestyle you want.