Retirement Age

For many, Social Security benefits are significant in retirement planning and budgeting. The Social Security Administration officially sets your retirement age based on your birth year and starts at age 66 or higher. You have the option to take benefits early at age 62 but lose a portion of the benefit. If you wait until age 70 to take benefits, your monthly amount increases.

Of course, early retirement or late retirement is mostly a personal choice unless you don’t have enough money away to retire and must keep working or take your Social Security benefits early to survive.

The Demise of Social Security

The prediction is that the Social Security Trust fund will run out of money around 2033. When that happens, the money coming in from payroll taxes withheld will be around 76% of what is needed to pay the existing Social Security benefits.

Plan for the future when this may happen, and don’t count on money that may not be available from Social Security.

Making a Retirement Budget

A reasonable retirement budget is between 55% and 80% of your annual income before you retire. Budgeting for retirement considers the money available to you as monthly retirement income and the amount needed to cover the basic costs of living, which are as follows.

Housing

Housing is usually your largest expense, even if you own a home with the mortgage paid off, because of the property taxes and maintenance.

Healthcare

If you qualify for Medicare at age 65, it helps cover some medical expenses, but you must pay for Medicare Part B insurance, which helps pay for doctor visits. There is no long-term care coverage included, so if you want to have insurance for long-term care, that is an additional expense.

Daily Living

You have to have enough to cover the cost of groceries, clothing, transportation, and household supplies.

Entertainment

You should be able to enjoy yourself in retirement, so budget for dining out, seeing movies, or attending theatrical performances.

Taxes

Some of the income from your retirement account may be taxable. If you have a certain income level, part of your Social Security benefits may be taxable, and some states have taxes on retirement income, too.

Debt

If you are still paying off your house, you may have a mortgage payment to make. Hopefully, you got rid of high-interest credit card debt before retirement. If you did not, make a plan to pay off these credit cards ASAP to avoid wasting money on interest.

Travel and Hobbies

Like entertainment, you want to have money in the budget for a bit of travel and to pursue hobbies that you can in your free time.

Home Modification

As you age, your home may need adjustments to accommodate your needs. Perhaps you may need a walk-in shower or a stair lift. Keep your future needs in mind and set aside an amount to cover them when these expenses are necessary.

Family Support

Your family may need financial support and ask you for help. You should balance their support with your needs.

How much do I need for retirement?

If you feel like you may not have enough money saved for retirement, you are not alone. According to the Bureau of Labor Statistics, the average annual salary in America is $65,470. The recommendation for retirement savings is ten times your annual salary, which equals $654,700 based on this average income.

A Forbes study found that the average baby boomer has $500,000 or more saved for retirement. Nevertheless, even if you have a million dollars saved for your retirement, that may not be enough, mainly because Americans are living longer on average, and healthcare costs are skyrocketing.

Planning for Inflation and Dollar Devaluation

Social Security benefits have a yearly cost-of-living increase to cover inflation. Any retirement savings that is not indexed for inflation will lose value if the amount of interest earned does not cover the inflation and the devaluation of the dollar that comes from inflation. Retirees on a fixed monthly income may find that their purchasing power decreases significantly, and they need more money to cover basic living expenses.

Life Hacks

Not having enough money for your retirement is a shocking concept, so we made a list of “life hacks” that may give you options to consider when it comes to retirement planning.

Getting Discounts

Take advantage of all the discounts and special offers found on WiseSavings.com to avoid wasting money by overpaying for things that you can get for less. By answering a few easy questions, the system will help you find better deals for things like medical expenses, insurance, auto and transportation expenses, food, and housing.

Continuing to Work

You may find yourself continuing to work past retirement age. Many find they must continue to work to pay their bills. Others enjoy working part-time in semi-retirement and may do something for enjoyment and to stay active without as much concern over the money earned.

Downsizing

In retirement, you may find that your housing requirements are less. It may be convenient to move from a larger home into a smaller, less expensive place. Downsizing in this way has three benefits: 1) You extract any appreciated value in the home you bought; 2) you reduce your maintenance costs and responsibility in managing a smaller place, and; 3) the process of de-cluttering your life is refreshing and uplifting if you manage the process well.

Cohabitation

If you happen to lose a life partner who dies before you do, you do not have to continue on alone. Women are likely to live longer than men. Many widowers find it possible to team up with another woman, like the TV sitcom “Golden Girls,” in the same condition and share living space to reduce expenses and have a friend to enjoy.

Moving In with In-laws

While maintaining your independence is essential, when you are free from the constraints of a job, you have time to spend with your loved ones. Perhaps you can move into a spare room with your in-laws and help care for the children.

Relocating

Some retirees have limited budgets that put them at a disadvantage in high-cost states like California, but that same amount of money can go much further in other states with a lower cost of living.

Ready? Set? Retire

We hope this guide was helpful. Now that you understand how to make a retirement budget, remember to get your discounts and other help from WiseSavings.com.