Who Needs a BUDGET? Well... It matters in retirement!

Conventional wisdom, and most financial advisors, suggest that saving and investing the right way often lead to a successful retirement.  Of course, there’s a good deal of truth to this.  But there is another very important component that often gets left out of the equation – the BUDGET!  This ever-dreaded word may in fact be one of the most underutilized parts of retirement planning. 

When we’re young and working, maybe having a family, and going along living our lives, we tend to somehow fit our expenditures into our cash flow.  We know how much we make, have a general sense of how much we’re putting away in our 401(k)s, and for sure, what the net deposit is into our bank accounts.  Many people get into the habit of wiping that net amount out each month with their spending – essentially living from paycheck to paycheck.  It’s not a critique, it (and life) just happens. 

However, living in retirement is very different.  When you pull that trigger and say “sayonara” to work, the burden falls on your retirement nest egg, pensions and Social Security to keep you afloat.  Now, the whole equation now reverses from what you’re used to in your old work life.  It’s no longer how much you make that drives how much you can spend anymore.  Instead, it becomes “How much do you need from your resources to provide you with the lifestyle you want – without running out?”  SO, now what?  Ultimately, the answer lies in the BUDGET!  Yup, we’re going there…

How do you create a BUDGET (when maybe you’ve never had one before)?  A good starting point is to conduct a review of your expenditures over a six-month period.  It will give you a feel for where your money is going, and hopefully help you identify what’s really important to you, instead of the extras that tend to unnecessarily plump up your expenses.  I call it “trimming the fat.”  Don’t get me wrong, I’m not going to judge what you think is important and what’s the fat.  That’s your decision, but you need to own these numbers.  If you’ve always taken a trip to New York to see the tree and the Christmas Spectacular, then make sure that expense is in the BUDGET.  Maybe the $2,000 per year on car washes is something your vehicle can’t live without.  That’s fine, but you need to be OK with (meaning – plan, and own) using your retirement resources to pay for these expenses.  I will point out something I’ve seen that I will caution you about though.  When you’ve finished putting your BUDGET together, please make sure YOU’VE ACCOUNTED FOR FOOD!  You gotta eat…

Here’s another factor to consider.  I’d like to go back to that $2,000 per year spend on car washes for a second.  In your retirement budget, have you taken risk-factors into consideration?  Do you have a plan for a disabled spouse needing care in the future?  What about a spouse passing away early, and the survivor living on their own for many years?  Perhaps that $1,000 per month could be redeployed for another purpose, like insurance.  Or maybe, now that you are retired and have time to wash your car yourself,  that spend doesn’t sound so important if it looks like your retirement resources may not keep up with your future needs.  These are the tough decisions that need to be made now, not later.

Oh, and what about inflation throughout your retirement?  Remember how much you paid for your first house?  Compare it to how much you paid for your last car!  Most of the expenses in your BUDGET will get more costly over time.  (Will your nest egg be able to keep up with these increasing costs?  That’s another questions for another blog!)

So, as a financial advisor having helped many families make the transition from work to retirement, my suggestion to you is -  have some fun with the BUDGET!  Get a good bottle of wine (account for wine in your BUDGET by the way!), and do a mock BUDGET while you’re still working.  See what it might look like, and if you’d be happy living it.  And get help.  The BUDGET is only one component of a solid retirement plan. CERTIFIED FINANCIAL PLANNERTM professionals have the tools, techniques and experience to guide you through this process, and to help you execute the plan on an ongoing basis. 

In my experience, the most successful retirees follow a living, changing plan, because their lives are ever-changing.  And what changes with them?  Their BUDGET!

KRISTINE D’ESTERHAZY, CFP®, ChSNCTM, is a Financial Advisor for Paragon Wealth Strategies, LLC.  Please see her bio here.

Paragon Wealth Strategies
10245 Centurion Pkwy N. Ste. 106 Jacksonville, Florida 32256
Phone: (904) 861-0093