Sunday, July 26, 2015

Prioritize Now: Constructing Your Retirement Budget

Regardless of how old you are or how far along you've come in your career, prioritizing your retirement budget will help you plan for the future and save more over the course of your professional life. 

Doing so is especially important, as the average cost of living continues to rise and the threat of financial collapse could drain your retirement savings account. 

The following information will help you construct a solid retirement budget for the future.

Your Health: The Costs are Never Steady

Medicare might be around by the time you plan on retiring, but the program won't cover every medical checkup or procedure that you'll have in the future. The cost of medical care and medicine has drastically increased and will continue to do so for the foreseeable future. To compensate for changes in healthcare costs, you should start saving an addition al 3 percent, or $300 per year.

The Big Variable: Housing Costs

While you may think that the cost of housing won't go up if you've already paid off your mortgage, think again. Your property taxes and homeowners insurance will likely fluctuate over time and you need to compensate for it. 

Make sure you choose a reputable mortgage lender, so you can plan ahead for your future housing costs. If you're already saving $10,000 per year, consider adding an additional 2 percent, or $200, every year to compensate for housing changes. 

Decreased Costs in Transportation

When you retire, you most likely won't be driving as much or going out as much as you do now. While this means that there will be an overall decrease in retirement expenses, you should continue to save the same amount of money. 

Unexpected expenses could occur at any moment. Create your transportation budget based on the vehicles you expect to operate, your location and driving habits, and the costs of public transportation in your area.

Food Expenses Can Increase or Decrease

Retired individuals normally eat less in terms of the actual amount of food they put into their bodies, but many elderly folks need to have food that is part of a special diet. To make sure your food expenses are properly covered, add an additional 2 percent, or $200 to your yearly retirement budget. 

Research various dietary budgeting strategies to pinpoint which one works best for your household’s food consumption habits. Don’t forget to take into account any future additions to your household that you will need to provide food for.

Your Family: Gifts and Vacations

Most retired individuals yearn to do two things—relax and travel. The norm for most elderly individuals is to go on vacation at least once a year for one or two weeks at a time. 
Many even decide to go on extended trips for a month or more. At the same time, you must take into account monetary and physical gifts that you'll likely be handing out to your children and grandchildren in the future. No one wants to be the scrooge of the family.

To account for both annual vacations and monetary gifts to the family, add an additional 5 percent, or $500 to the retirement pot. When you add all of this up, over the course of 30 years, you will save an additional $36,000. 
When you pile on 5 percent interest and the $10,000 you've already saved, your retirement account will be much improved. 

Retirement Budget

The best way to construct a retirement and savings budget is to tally every living expense early on and drop the additional monetary amount into an interest-bearing 401(k) or pension plan to maximize your funds for the future.

Retirement Budget Templates and Sample Worksheets

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