After enduring the rollercoaster ride of the past few years, the dream of retirement holds an even greater allure than ever before. Through the chaos and uncertainty, you’ve diligently persevered, faithfully dedicating yourself to your work day after day, just as you have for countless decades. The light at the end of the tunnel has always been the fact that one day you’ll bid farewell to your office (or perhaps your home office) forever.
But instead of eagerly anticipating the golden years of retirement, a staggering proportion of Americans find themselves plagued (1) by the nagging fear of losing the hard-earned nest egg they’ve built over a lifetime. Even if this concern isn’t currently robbing you of sleep, you may still feel the need to be wise with your money during retirement, in order to ward off uncertainties that lie ahead.
If you’re hoping to stay steady with your finances during retirement, a budget becomes an indispensable tool—a bedrock of personal financial management. Let’s explore three important budgeting tips, that seek to maximize your income and cultivate a sense of reassurance as you embark upon your retirement journey.
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. Partner With a Professional
However, relying solely on a tax preparer during retirement falls short. Enlisting the help of a financial advisor can significantly impact the quality of your retirement by helping you reduce stress and anxiety and trading it for a boost in financial confidence. Your chosen professional should be equipped to oversee not only your financial resources but also your entire financial well-being.
At James Financial Group, we are dedicated to creating an all-encompassing financial strategy tailored to your needs. Our team collaborates with you to establish a comprehensive plan that includes both your immediate and future objectives, while establishing a sustainable budget and clear road map for your retirement journey. If you’re interested in partnering with professionals who prioritize your passions and aspirations over simply your investments and wealth, reach out today to schedule a no-obligation, get-acquainted meeting, or call us at 207-504-3614 and discover more about our personalized approach.
Jody James is an LPL financial advisor at James Financial Group, a firm that takes the mystery out of investing, managing risk, and preparing for retirement. With over 10 years of experience in the wealth management industry, Jody works closely with individuals and small business owners to craft creative and customized strategies that allow them to work toward their financial and life goals and preserving their wealth. Serving as a bridge between Wall Street and Main Street, Jody loves the juxtaposition and synergy as he helps clients pursue their dreams while also making an impact on the local community—raising capital for other businesses, entrepreneurs, and innovators.
Jody has a bachelor’s degree in history from Le Moyne College, an MBA from Brandeis University, and holds the Series 7 and Series 66 registrations with LPL Financial. When he’s not working, he enjoys traveling, working out, and spending time with his wife and three children, whom he adores. He’s also a huge New England Patriots fan. To learn more about Jody, connect with him on LinkedIn.
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