How To Make A Retirement Budget And Stick To It.

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How To Make A Retirement Budget And Stick To It.

Developing a retirement budget may not be on most people’s list of fun ways to spend an afternoon, but the effort can pay dividends by reducing the chance that you will spend too much money too soon in retirement. It may even allow you to allocate more money to the things that make retirement enjoyable and rewarding.

First the bad news: budgeting is not a commonly taught skill. Many people have difficulty compiling a list of their current expenses, let alone estimating ones they may incur twenty years or more in the future. In addition, retirees face potential emotional hurdles that come with spending assets they may wish to leave to children, grandchildren or other heirs. Having good budgeting skills can help retired clients feel more in control of their purchasing decisions. It is, after all, the one area of retirement planning over which you exert the most control.

Here is how to create your retirement budget:

Documents You Will Need

  1. Detailed list of your expenses for the past month. Try to pay for as much as possible using your debit or credit cards. Cash purchases are not as easily tracked.
  2. Bank and debit/credit card statements for the past 6 months.
  3. Last two pay stubs showing income and deductions.
  4. Last year’s tax return and supporting papers.

How Long It Will Take

  • Once you have invested the time in tracking your expenses, gathering the additional documents often takes less than one hour.
  • Plan to invest 2-3 hours tabulating expenses, categorizing them and developing your preliminary retirement budget.
  • We suggest you review your budget at least twice per year to see how close you are to the estimates, and to make any necessary revisions. Once per year you should update the budget to account for inflation and any material changes to lifestyle, health or expenses.

How To Do It

  1. Review your bank, credit/debit card statements and your detailed list of expenses and identify any overlapping items. List expenses and the relevant time period (1 month, 6 months). Next, list any annual expenses that may not be captured.
  1. Make a note of which expenses are essential and when they are incurred- i.e., weekly, monthly, etc. We suggest you think of “essential” expenses as those necessary to provide a basic standard of living. This would include things like groceries, shelter, transportation, medicine, taxes, utilities and insurance premiums.
  1. List your non-essential expenses and when they are incurred. This category will likely be much longer and includes items such as vacations, hobbies, cable television, magazine subscriptions and the like. It’s important to remember that these are the expenses you exert the most control over and may be willing to forgo if necessary. At this point, if your expenses are entirely or mostly classified as “essential” go back and look again.
  1. Research your health care costs in retirement. You should consider Medicare Part B premiums that are deducted from your Social Security check along with Medicare Supplement premiums and drug costs. Information for current Medicare Part B premiums is available at Approximate premiums for Medicare supplement plans can also be found on line.
  1. Develop an expense statement. List your expenses on the vertical axis and the month in the horizontal axis. We suggest you begin with a six month plan. Catalog the expense for each month and note any changes in the amount. Place annual expenses in the far right of the axis and list necessary expenses above non-essential ones. It might look something like the sample below.
Expense Item January February March April May June Paid Annually
Life Insurance
Long-Term Care Insurance
Total Essential Expenses
Magazine Subscription
Cable Bill
Cell Phone Bill
Total Non-Essential Expenses
  1. Divide the essential costs into total expenses to determine your ratio of essential to non-essential expenses.
  1. Make note of the things that you are willing to give up in hard times- i.e., a market correction or difficult economic times, and be sure to consider those things that could throw your budget off track. Some common ones include:
  • Unanticipated health or long-term care costs.
  • Home renovations or repairs- expected or unexpected.
  • Caring for a parent, sibling or adult child.

Viola, you have a retirement budget! As a final step, you might look for ways to reduce essential costs so you have more money to spend on the things that will make retirement enjoyable and gratifying for you.

John Male, CFP®
The Gassman Financial Group
G&G Planning Concepts, Inc.
9 East 40th Street, Suite 1500
New York, NY 10016
Tel: 212-221-7067
Fax: 585-625-0830


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