Start Budgeting for Retirement
Why Start Budgeting for Retirement
The uncertainty of Social Security makes a budgeting for retirement crucial. As you head towards retirement, you may want to prepare a budget. You’ll want to be able to meet any financial obligations and any additional retirement goals, and will need to make sure you have the money set aside to do that. This will help you to have the money necessary to fund the years you have left, as well as leave any inheritance you have in mind.
No two budgets will be the same because no two people will have the same plan or goals. Advice for any type of budgeting is pretty standard and there is not much difference between planning a regular budget and planning a retirement budget. The only difference in budgeting for retirement is how you plan to reach your goals.
Age plays a part in determining your retirement budget. If you are younger than 45 years, it may be more difficult to determine the correct numbers. However, if you are older than 45 than it becomes imperative to calculate your budget carefully to ensure accuracy. There are some variables that can affect your life expectancy such as; if you smoke, if you are subject to second-hand smoke, if you are healthy or not, if you are obese or have a sedentary lifestyle. Most of these factors can knock off as much as 5 years a piece from your life expectancy.
Planning Tips
When planning a retirement budget it is important to know where you are now with your finances, where you are going, and how you will reach those goals. Another important factor is to take into consideration your life expectancy. Perhaps the best bet is to plan to live to 100; this allows you a bit of leeway and perhaps the ability to save more if you plan on leaving an inheritance. When planning it may be best to use a pre-made worksheet that helps you calculate your current expenditures as well as what you may need in retirement. Remember to allot for necessary items such as food, entertainment and recreation, computer related expenses, transportation, gifts/contributions, and child/dependent care, personal care, clothing, education, obligations, pets, home, and medical expenses.
Determining your net worth is a great indicator of where you are financially at this time. It is a good idea to prepare a net worth statement once a year to track where you are financially. The first time will be the most difficult as you are starting from scratch. In the future it will get progressively easier as you will have a better understanding of what you are worth. To calculate your net worth, add up the total amounts for your assets and liabilities. Then subtract your total liabilities from your total assets. The result is your net worth.
Assets would be property that you own, any investments, or money that you currently have. Some examples of assets would be; cash, bank accounts, real estate, life insurance cash value, stocks, bonds, retirement accounts, household goods/furnishings, and jewelry. You will need to list all of these items and their value. Liabilities are debts that you have to pay. Some examples would be; utility bills, medical bills, credit cards, child support, alimony, back taxes, mortgages, and any loans. Just like with assets; you must list all of your liabilities and the amount owed on them.
Look at each of your liabilities and assets. Determine which if any will change when you retire. It is important to calculate as precisely as possible. It would be very bad to be 70 and find out that you were going to run out of money in the next 5 years. You want to begin by listing all of your assets and liabilities. Compile your bank statements, loan papers, credit card bills, insurance policies, investment papers, tax receipts and any other relevant documents. After you have gathered this up, divide the papers into assets and liabilities. The more you gather up the more accurate your statement will be.
