Retiring in 2022? 4 Steps for Setting Up Your Budget

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Retirees need budgets, too. Here's how to make one.

Key points

  • Just as workers need a budget, so do retirees.
  • Your new budget can be largely based on your pre-retirement spending as long as you account for lifestyle and income changes.

You may not have followed a budget carefully during your working years. But if you're retiring, it's really important to get serious about budgeting.

Though some retirees hold down part-time jobs, if that's not a part of your plan, then you'll need to be really careful about managing your money. This especially holds true if Social Security will be your main income source, and you don't expect to have access to much money outside of those benefits.

Whether you're completely new to budgeting, if you're retiring shortly, here's how to set up a budget in four steps that allows you to make the most of your income.

1. See what your existing expenses look like

Chances are, many of the things you pay for today are expenses you'll continue to incur once you're officially retired. Comb through your credit card and bank account statements from the past six months or so, and see what your spending has looked like. Then, write down each expense category that applies to you along with what it costs you on average. For example, if your electricity bill is usually about $150 a month, that's a line item you'd include in your budget.

2. Figure out how your spending is likely to change

Some of your living costs might decrease once you retire. For example, you might spend less on gas once you're no longer driving to work every day.

But some of your living costs might rise in retirement. If you'll be spending more time at home, your utility costs could increase. And you may end up spending more money on leisure and entertainment since you'll need to keep busy in the absence of a job. Go through each line item in your budget and tweak that amount based on how much you think it will change.

3. Determine what income you have at your disposal

You may be privy to a number of different income sources once you retire, like Social Security benefits, retirement plan withdrawals, and money from a pension. Add up those income sources so you know how much you can afford to spend, and tweak your budget if need be to account for a drop in income compared to what you're earning now.

4. Set priorities to maximize your newfound free time

You may only have so much room in your retirement budget for things like travel and entertainment. But those are expenses you may want to prioritize once you stop working, since sitting around the house bored all day is hardly a great way to live.

Take a look at your budget and see if there's room to cut back in certain areas to free up more money for leisure. You may decide to make bigger changes, like downsizing, to give yourself that leeway.

Sticking to a budget could help you avoid a world of financial stress once you retire. These tips could help you create a budget that's not only realistic, but that allows you to spend your retirement years doing the things you always dreamed of.

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