KNOW Your Retirement Budget Before Retiring By Living It First

How accurate do you want your perceived retirement budget to be? Nobody wants to mess this up because it can result in blowing through the nest egg quicker than planned and your retirement ending badly. That’s why it’s a good idea to actually KNOW your retirement budget before retiring. At least knowing as close as possible. That is best done by living your retirement lifestyle before retiring. The best way of doing that is by living as much of it as you can.  

We all run our numbers through a trusted retirement calculator based on our perception of what we will reduce our spending on in retirement. We may also add a bit to the budget to support our retirement travel desires. But there can be a big difference between perception and reality once living it. Here are a few pointers to help you KNOW your retirement budget is reality based.

Proving Conventional Retirement Spending Wisdom Right or Wrong

Everyone believes they will spend much less in retirement. We tell ourselves that because the notion that we all need 80% of our working income in retirement is a tall order to fill. That and it is far from being true for a lot of people. But the only way to KNOW is by living it first while you are still collecting that paycheck. Chances are if you can’t do it when still in the grind then you probably won’t be able to live with that budget in retirement either.

People do a lot of things because they either really enjoy it or they can’t live without the convenience it provides. Living your retirement lifestyle and budget before retiring is as much a personal mentality check as it is a retirement budget reality check. Some habits are harder to give up than others. That being said, this all should happen long before ditching the rat race. Getting this right is about the rest of your life in retirement. One should give themselves years of practice to work through this as it may take a gradual approach by incremental spending reduction and lifestyle changes instead of going abruptly cold turkey on the day you happily skip away from the job.

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KNOW Your Retirement Budget Before Retiring

Giving Frugal Living A Shot

Frugality may be the last thing on your mind, but like it or not, most retirees do embrace an element of frugal living to stretch their fixed income and savings. Retirement budgets usually assume cuts in all kinds of spending. Adopting your more frugal retirement lifestyle in advance will not only allow you to understand how you will live but get you closer to knowing your retirement budget and whether you can live with it. Doing so in pre-retirement will also free up more money for debt elimination and retirement savings.

Nobody wants to live a life feeling deprived. Finding your frugal thresholds helps set a sustainable retirement budget and lifestyle to base your plan on. The first step is tracking where your spending goes. Then trimming back things you won’t include in your retirement lifestyle. Why wait until retirement? If it isn’t going to be important to your happiness in retirement then shed that crap now. Otherwise you may make a bad retirement budget assumption that will end up straining your plan.

Obviously there is employment related costs that can’t be cut in pre-retirement. Commuting, work clothes, occasional lunches out, etc. But tracking what you are spending allows you to accurately subtract that out of your retirement budget projections. It also lets you see how much you could save by trimming workday lunches eating out or other little things. Like parking your car and instead going for mass transit or carpooling and maybe saving even more money now.

Keeping it real

Living more modestly before retiring will get you closer to understanding what is realistic in your retirement budget. Thinking you will have time in retirement to clean your own house or mow your lawn to save money in retirement after firing the maid or landscape contractor will only happen if you can be happy doing that stuff yourself. If your perceived retirement budget isn’t including luxuries you pay for now, then live like you can’t afford what you freely spend on while working. Trim it away before retiring.

Sometimes we use the excuse of having little time to justify our convenient luxury spending choices when it might actually be we hate doing that stuff ourselves. Find out before you retire so your retirement budget reflects the truth.

Give Your Non-Essential Living Expenses Careful Review

Unfortunately retirement can and will mess with your mind. We just don’t go from career to retired without some mental transition effort and time to happily get there. Besides unintentionally connecting our self-worth to what we did for money, we also attach it to other things that may have a high cost. Like the county club, sports, hobbies, fitness club, over-spoiling the grand-kids, etc. Saying you are going to cut back spending once retired in areas you have connected with in this manner may be far harder than you can imagine.   

Instead of just assuming you can cut things in retirement, trim it back now and find out for sure. This will allow you to try out your assumptions.

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Give up the gym and try working-out at home or other forms of exercise. Use public golf courses, scale back expensive hobbies or sports. Match your lifestyle now to try out your perceived retirement levels.

So much of what we enjoy gets attached to our self-worth. It can also be a big part of our social life and what we are retiring to. Both of which will also need to be shifted and worked on. There is no better time than pre-retirement to test your assumptions.

Some Retirement Costs Require Having a Plan B

Some costs can increase far above the inflation rate we use in our budget planning. You can’t always just raise your retirement budget when something you planned for or you really need ends up escalating in costs beyond projections. It will require making some big adjustments in retirement spending and lifestyle. It is a good idea to establish a Plan B and when possible practicing it before retiring. Some areas that have risen far above the inflation rate in recent years and have a huge impact on a retirement budget are:

Health Care –

If you retire before being Medicare eligible and things continue like recent history then expect double-digit increases year after year.

Property Taxes –

As home values recovered since the real estate bubble caused recession, property taxes have drastically increased.

Home and Auto Insurance –

Insurance companies pass their losses due to natural disaster to the customers whether you have had a claim or not. Tornadoes, hail, biblical rainfall, wildfires, and hurricanes across parts of the country are happening more often.

What you can do

When living your retirement budget, pay attention to these increases and identify where you can cut back in other areas if they bust your retirement budget once retired. For example, find out if you really can handle skipping or trimming vacations. If traveling is a huge part of your pre-retirement life and will also be in retirement then cut way back or suspend travel for one season. Then bank the savings.

Park the car and use mass transit or bicycle every weekend or when off work for a while. Understand that you may not be physically able to that in older age. Could you live without a car? Would you consider moving to a more mass transit friendly location to save your retirement budget?

Are you assuming that you’ll keep your huge entertainment cable or satellite TV package in retirement? Cut the cord for a while and see if you can live without that if you had to.

Can you consider reentering the workforce? If so, do have a plan to stay employable by keeping and/or gaining skills? How about staying physically and mentally fit?

These kinds of things should be part of your Plan B if things go awry.

If you find that unappealing then you must ramp up your needed portfolio savings target to accommodate the possibility of having to raise your retirement budget for these kinds of uncontrollable cost increases. That may be a turnoff if you’re already struggling to save enough as it is. But it’s always a great idea to over save than under save for retirement to handle all kinds of budgetary surprises.

Last Words

Living your retirement lifestyle and  budget before retiring is about getting it as close to reality as possible. In both your financial numbers and the assumed retirement lifestyle you are planning for.


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