Costs to Include in Your Retirement Budget

Let’s talk about some different costs that you’re going to want to include in your retirement budget. So when preparing for retirement, you know what is the amount of money that you spend now versus what you think is going to be your expenses in retirement. It might surprise, but they might be very, very similar. So I’d start with a budget worksheet. Why don’t you look at the past several months of your credit card statement. If you run a lot of your charges through the credit card and sort of see what are those different areas where you’re spending money. And that’s something that you can evaluate whether you anticipate continuing that amount in your retirement years. Let’s start with your housing budget. This is likely the largest part of your budget. If you have a mortgage, that might be something as you’re preparing for retirement, is that a key focus to try and pay that mortgage off prior to retirement? That’s typically a family’s largest expense is that cost. And so if you can get that paid off and get that eliminated, it puts you in a much better position in retirement. What about your property taxes? Your home insurance? Different maintenance costs for the house. The list goes on as you can imagine as a home owner. What about health insurance? That’s an area where you’ve got your Medicare Part A and B which currently in 2022, stayed at $170.10 per person. So you can budget that in. But if you’re a higher income, you might pay more. But along with that, there’s different probably Medigap plans that you’re going to be paying for. So figure that out and that’s a key piece. What about taxes? Traditional IRA, 401K withdrawals, those are going to be taxable to you at age 72. You have required minimum distributions from those different retirement accounts. And a lot of times people come and get to retirement and they say I want to buy this boat or this car or whatever it might be. I’ll just use my 401K or IRA. Well that might surprise you what the tax implications are for taking such a large withdrawal. So you need to consider that. What about your food costs? You might have more time to cook at home or you might have more time now to think well, I’ll go out for lunch or dinner, whatever that might be. So you want to budget that to the overall plan. Having an emergency fund is going to be important for those different home repairs. The new roof that needs to be done in a few years, appliances break down or vehicle maintenance. Whatever that might be. Entertainment, you know here in northern Michigan there’s plenty to do outside that doesn’t cost anything. But again, there’s a lot of fun things that also cost money to enjoy. Travel, that’s one of the areas that I enjoy hearing from our clients is all the unique adventures that they take in retirement. And what about grandchildren? Maybe you want to spoil them a little bit. So again, there’s a lot of different costs that come up in retirement. I encourage you to go through and map that budget out for you and your family.