Retirement is a milestone we’re all working hard to reach. But sometimes this goal can feel so distant that it’s more like a dream—especially after the last few years we’ve had. But you’ve worked too hard in life not to reach the retirement you’ve dreamed of. Almost half of all Americans worry about running out of the money they’ve spent their lives saving up. This is why it’s important to have a solid retirement plan that can help your future dreams become a reality.
Here are three budgeting tips to give you knowledge and confidence to build the kind of retirement you desire—starting today.
1. Identify Flexible Spending Categories
As you build your budget, organize it based on needs. Every single expense should be identified as either fixed or variable and essential or non-essential. For example, your housing expenses are likely fixed and essential. Food is essential, but it is a variable expense. A gym or country club membership may be fixed, but it is non-essential. Other forms of leisure or travel are likely variable and non-essential.
Knowing which expenses are necessary and which are flexible can relieve some of your concerns going into retirement. If you’re used to spending $8,000 a month, once you sort your expenses and discover that only $4,500 of them are truly necessary, it relieves a lot of pressure.
Identifying these spending categories also allows you to make wiser financial decisions and adjust better to market conditions. If we enter a bear market and your portfolio is down, you can cut spending back to cover the necessary expenses you identified. Maybe you put off that big trip or eat out less. This can potentially keep more of your money invested so you can be better positioned if and when the market bounces back.
2. Plan for Taxes
Unless all your money is in an after-tax account or Roth IRA, you’ll have to deal with taxes in retirement. Having your mortgage paid off before retirement is a common—and excellent—goal. However, don’t make the false assumption that no mortgage equals no payments.
Part of your monthly mortgage payment may be going toward property taxes and homeowners insurance if you escrow. Don’t forget that you still have to pay these bills when your home is fully paid off, and these figures must be included in your budget (and remember that these numbers will be inflating over time as well). One way to handle property taxes and homeowners insurance in retirement is to set aside money every month, just like you did with your mortgage. This way, you will have the funds available when those bills are due.
Property taxes won’t be the only taxes you’ll owe in retirement. Distributions from 401(k)s and IRA accounts will most likely be considered taxable income. Even your Social Security benefits may be taxable, depending on your overall income. It’s critical that you withhold and pay the proper taxes so you don’t get into a large tax bill situation. A competent tax preparer can help with this.
3. Work With a Professional
However, it’s not enough to only work with a tax preparer during retirement. Be sure to also work with a competent financial planner—it can mean the difference between a retirement marked by fear and stress (like the 49% of Americans mentioned previously) and one of confidence.
Yes, it’s wise to have a financial professional help you with your investments during this next stage of life—but don’t stop there. You need your professional to help manage not only your money but also your entire financial life. A good place to start is with a CERTIFIED FINANCIAL PLANNER™ professional, and preferably one that is fee-only and a fiduciary.
Our team at Black Walnut Wealth Management is ready to discover how to simplify your financial future and enjoy the financial independence you’ve always hoped for. We are dedicated to doing more so you can worry less. Schedule a 15-minute introductory meeting by calling us at (231) 421-7711 or visit our Contact Us page to schedule online.
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