By Thomas Britt
You work day in and day out. Often what keeps you going is the knowledge that one day you’ll finally clock out for good. But rather than eagerly anticipating the golden years of retirement, almost half of all Americans worry about running out of the money they’ve worked so hard to build over the decades. (1) Are you one of them? Even if you’re not, you likely feel the need to be fiscally responsible in retirement in order to avoid problems down the road.
If you want to stay on top of your finances in retirement, a budget is essential—in fact, it’s the foundation of personal financial management. Today let’s discuss three budgeting tips to help boost your confidence and peace of mind as you enter and enjoy retirement.
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 give you incredible peace of mind. 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.
It 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 of your money is in an after-tax account or Roth IRA, you will 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 it’s important that these figures be included in your budget. Keep in mind, 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 on a monthly basis, just like you did with your mortgage, so that you have the funds when those bills are due.
Property taxes won’t be the only taxes you will 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 are withholding and paying the proper taxes so that you don’t get into a large tax bill situation. A competent tax preparer can help you with this.
3. Work With A Professional
I’m not talking about just tax preparers. During retirement, you’ll also want to work with a competent financial planner—it can make the difference between a retirement marked by fear and stress (like the 49% of Americans mentioned previously) and one of confidence.
It isn’t enough to just have a professional help you with your investments during this next stage of life. Yes, it’s wise; but you need a financial professional to not only manage your money but also to help you manage your entire financial life.
We at Benchmark Wealth Management, LLC will help you develop a comprehensive financial plan that includes your short-term and long-term goals, a sustainable budget, and a general road map to help you navigate retirement. To learn more about what it’s like to work with a professional who cares more about your life than your investments, please call 860.434.6890 or email me at thomas.britt@bwmllc.net to arrange a consultation.
About Thomas
Thomas J. Britt is managing director of Benchmark Wealth Management, LLC, with 20 years of experience in the financial industry. He specializes in executive financial planning, retirement planning, investing, as well as the management of trusts and endowments. Thomas is a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional and holds the Master Planner Advanced StudiesSM (MPAS®), Certified Investment Management Analyst (CIMA®), and Chartered Retirement Planning Counselor (CRPC®) designations. He earned a Bachelor of Science in Finance from the University of New Haven, an MBA in financial technology from Rensselaer Polytechnic Institute, and a Master of Science in Personal Financial Planning from the College for Financial Planning. He is also a proud veteran of the United States Navy Submarine Force. Learn more about Tom by connecting with him on LinkedIn.
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(1) https://www.aarp.org/retirement/planning-for-retirement/info-2019/retirees-fear-losing-money.html
Tom’s life experience includes over 19 years in the financial services industry, 10 years in engineering as an Operations Supervisor for a Fortune 500 subsidiary and he is a proud Veteran of the United States Navy Submarine Force. Tom draws on his professional experience to assist clients in creating and executing wealth management strategies, which help guide his clients towards achieving their financial goals.