4 Reasons You Need A Retirement Budget Now
Most people think about their lives in stages. Childhood is the time of imagination and exploration. Your teenage years are full of excitement and promise. College or learning a trade is all about dealing with a newfound independence. After school, it’s about accomplishing some of your goals like building a career or making a family.
Then you'll finally reach that finish line called retirement.
Throughout life, you were probably told time and again to have a budget. And, most likely, this budget followed the stages of your life. You've likely created and followed a written budget for each stage of your life. This has been incredibly important for your security and stability. But, what about planning a budget for future stages?
Most people fit saving into their current budget but do little to think about what a retirement budget will look like. How do you know how much to save for retirement if you don’t know how much you’ll be spending? By anticipating and planning your a retirement spending now, while you may still be earning and saving, you'll have better set yourself up for the future.
1. You’ll Know You’re Saving Enough Money.
The only way to know if you’re saving enough money is to know how much you plan on spending. Granted, you’re not going to know the details of each spending category. However, you can work with rounded numbers that can give you an idea of what you’ll need for necessities and, of course, fun and legacy.
This is when you’ll also start figuring in things like taxation and inflation, which can affect how much you’ll need to save. In a way, setting a budget while you're still saving gets you to think about the absolute basics of your retirement – how you want to spend it and what you want to do in your golden years. Then, when the triumphant day comes for retirement, you'll have a planned budget ready to be developed for this next stage of your life.
2. You Won’t Spend Too Much.
If you don’t set a retirement budget, you’ll find yourself in one of two extremes – either spending too much or too little. It’s not anyone’s dream to get to the end of their retirement and wish they could’ve done more. When you have a budget for retirement, you’ll be able to spend what you want and can afford.
On the other extreme is overspending. It’s true the average retiree spends less each year as they age. However, this doesn’t account for spending in areas such as healthcare. You’ll most likely need at least $280,000 for healthcare* to carry you through, if you retire at 65. Those costs can increases depending on long-term care and nursing home care costs. So, while you might not be spending a lot on luxury items or trips around the world, you may be overspending in unplanned costs such as healthcare if you don’t budget.
3. Prepare For The Known Unknowns.
While you could write down a simple budget on the back of your napkin right now, planning your retirement demands time and attention to detail to ensure consideration of multiple factors. Will you still have parents that need care until their passing?
A retirement budget helps you prepare for known unknowns like medical emergencies for you or a family member. It’ll also help you prepare for those areas that you already know are coming, such as estate planning. Without a retirement budget, it’s difficult to know if or how you'll sail through hardships so that you can have an estate to plan.
4. Retire With Confidence.
With a retirement budget, you will be able to retire with confidence because you’ve thought it through and considered many of the possibilities. Because of the many factors and considerations, planning can be tedious and time-consuming, especially if you’re doing it by yourself. Of course, if you get help from a wealth manager, you’ll be working towards perspective and confidence instead of feeling overwhelmed.
At Vector Wealth, we believe you're goals and values should drive your retirement. This doesn’t just stop at planned saving. It includes setting a retirement budget so that you can retire with confidence.
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* The average couple retiring today at age 65 will need $280,000 to cover health care and medical costs in retirement according to the 2018 estimate.
