Being on the precipice of retirement can incite a variety of emotions. It is, after all, a major life change that alters daily habits you’ve had in place for decades. Financially, it marks a shift from saving and contributing to your retirement nest egg to drawing and depending on it for monthly income.
When the question of “is it enough?” arises, the answer lies in understanding your lifestyle costs. To create a sustainable retirement plan, you and your financial planner need to know how much your lifestyle truly costs. This is why budgeting is not just a helpful tool—it’s crucial for retirement success.
The Benefits of Using a Budget
Our clients often ask, “Can I afford to retire?” While we provide a comprehensive financial plan—covering investments, Social Security, tax planning, and more—the success of that plan often hinges on one key variable: your budget, and more precisely, your ability to stick to it.
When you work with a financial planner, the monthly spending figure you provide guides our long-term projections. Planning for someone who needs $5,000 per month in retirement is dramatically different than planning for someone who needs $10,000 or more every month. If we overestimate your needs, we may unnecessarily recommend over-saving or tell you to work for several more years unnecessarily! On the flip side, underestimating spending can lead to significant challenges (i.e., running out of money!) when the reality of your expenses doesn’t match the plan.
Retirement also brings the transition to a fixed income, where now the biggest lever you can pull switches from the income you can earn to the spending you can control. Living within your means becomes increasingly more important. This switch may be especially noticeable to high-income earners who’ve previously never had the need to budget, and now find themselves having to become more aware, and discerning, of their spending in retirement. The goal isn’t necessarily to spend less but to live comfortably within your means.
Finally, an accurate budget helps your financial planner offer timely feedback and course corrections, empowering you to enjoy retirement confidently. The earlier you establish a clear picture of your spending, the more flexibility you have to make impactful changes before retirement.
Setting Yourself up for Success
While you might have an idea of how much you’re currently spending, it’s good to put those assumptions to the test.
A great place to start is to collect three months’ worth of bank and credit card statements and review your current spending. Monthly spending can fluctuate from month to month, so getting an idea of your average monthly spending is key.
(Check out our Excel budgeting sheet as a guide for how to categorize your budget.)
Don’t forget to account for those irregular expenses such as semi-annual or annual insurance premiums (auto, life, homeowners, etc.), taxes, auto registration, vacation/trips, etc.
Once you have your monthly numbers, ask yourself the following questions:
- Are there any big surprises?
- Is the overall number different than you thought it would be?
- Are there any adjustments you’d like to make?
Your results will help inform any future decisions that need to be made.
Online Budget Tracking Options
While some prefer using pen and paper to track their expenses, others prefer to leverage technology. For the tech-savvy, there are several different budgeting apps available to help you plan and track your finances. Some come with a monthly or annual subscription and others are free.
Here are a few of the more popular options:
Bank & Credit Union Apps
Many banks and credit unions offer their members free budget tracking tools and features. With expenses you’ve paid for via your checking accounts being tracked and categorized for you, this is one of the most convenient ways to get an idea of your monthly spending. An added benefit is tracking spending trends on some apps.
Mint
This was the most prominent budgeting app and had been previously decommissioned. Mint has since been reimagined, and relaunched.
You Need a Budget (YNAB)
This is a paid app that allows for very detailed tracking and planning for future expenses. Members have the ability to link their bank accounts and credit cards for real-time tracking. This app is ideal for someone who prefers having a detailed view of their finances, and strategic plan for every dollar coming in.
For even more options, websites like NerdWallet provide helpful comparisons of the different budgeting apps available.
Tracking Toward Your New Chapter
Creating and maintaining a budget isn’t just about tracking numbers, it’s about empowering you to enjoy retirement with confidence and clarity. By understanding your lifestyle costs and aligning them with your financial plan, you can ensure your retirement years are not only sustainable but fulfilling. Start early, stay consistent, and work closely with your financial planner to make the most of this exciting new chapter.
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