By Joe Vitale
If you weren’t worried about your retirement before 2020 came around, you might be now! With all of the economic uncertainty and market volatility we’ve experienced the last few months, it’s to be expected to experience at least a little anxiety with your golden years just around the corner. Well, you’re not alone. Almost half of all Americans are worried about running out of money in retirement. (1)
Even if you’re not worried right now, you probably feel the need to be fiscally responsible in retirement in order to avoid problems down the road. To stay on top of your finances in retirement, it’s important to have a budget. A budget is the foundation of personal financial management and is even more important once you enter the retirement years. Here are three budgeting tips that may give you 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. Don’t Forget 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 towards property taxes and homeowners 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 homeowners 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 to make sure 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
Speaking of tax preparers, they aren’t the only financial professionals you’ll want to work with in retirement. A competent financial planner can make the difference between a retirement marked by fear and stress, like the 49% of Americans we discussed earlier, and one of confidence.
As you retire, you will find many investment advisors who want to work with you and manage your money for you. It is wise to have a professional help you with your investments, but that isn’t enough. You need to find a financial professional who will not only manage your money but help you manage your entire financial life as well.
In addition to easing your retirement worries with a sustainable budget and a general road map to help you navigate retirement, a good financial planner will help you develop a comprehensive financial plan that includes a look into your short-term and long-term goals. After all, it’s not just about surviving your golden years, it’s about enjoying them! If you want to learn more about what it’s like to work with a professional who cares more about your life than your investments, reach out to us at American Retirement Advisors, Inc. Call us at (855) 756-5700 or email joe@aradvisorsinc.com to set up a complimentary introductory appointment.
About Joe
Joe Vitale is president and independent advisor representative at American Retirement Advisors, Inc. With over 30 years of experience in the financial industry, Joe specializes in wealth preservation and distribution, helping his clients protect their hard-earned money from market downturns and the cost of long-term care. As a fiduciary, Joe cares deeply about putting his clients first and serving their best interests. Joe resides in Lapeer County, where he is involved with and supports numerous local and national charities. He enjoys spending time with his friends and family, including his 5 daughters and 2 grandchildren. In his spare time you can find him relaxing in the country with his family or trying to better his golf game, which needs some help! To learn more about Joe, connect with him on LinkedIn.
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(1) https://www.aarp.org/retirement/planning-for-retirement/info-2019/retirees-fear-losing-money.html