Managing a Budget During your Retirement

Unless you have accumulated substantial wealth where money is not a concern, you face a critical task when you reach retirement to make sure that your assets will support you through your lifetime.

When you retire and no longer earn an income to pay for your bills and living expenses, developing and adhering to a financial plan – where cash flow is clearly defined – can help you balance your income and expenses. This is especially true as longevity continues to rise among certain demographics. For instance, the "average" person who retires at age 60 can expect to live 25 or more years after they retire.

There are important steps that you can take to maximize your cash flow and better manage your income and expenses during retirement.

Step one: careful planning

As you reach retirement, try to obtain a clear picture of your financial situation and projected income and expenses. Start by creating a detailed net worth statement, which provides a comprehensive overview of your assets, debt, and cash-on-hand.

Next, assemble an accurate budget that itemizes your income and expenses. If you anticipate any major lifestyle changes after retirement – for instance, you plan to sell your house and downsize to a rent controlled apartment – make those notations. Include your anticipated income during retirement, such as Social Security, pension, and other income streams.

Include all of your expenses, including recurring fees (membership, insurance, college tuition), prorating them to account for them on a monthly basis. Consult a financial professional for assistance, as you want to make sure that you are accurate (and certainly not under) in your calculations.

After you develop your statement, review the figures for any potential cash flow issues. Look for areas that you can improve your income/expense balance. For example, you may have fees or expenses that you can reduce or even eliminate.

Step two: ongoing monitoring

Creating a detailed budget is not a one-and-done proposition. Revisit your planning tool regularly and readjust the figures if your actual income and expenses change.

By monitoring your income and expenses on a regular basis, you can best address any shortcomings and proactively look to reduce expenses to avoid any ongoing cash flow issues.

Step three: the fine print

As you monitor your finances, there are several items that could impact your cash flow in profound ways:

  1. Interest rates: these fluctuate and could reduce the income from your savings and investments. If rates drop, you may need to find living expenses that you can decrease to offset the impact.
  2. Tax rates: federal, state, and local tax rates change over time. So, too, do tax regulations. Make sure that you understand the impact, if any, that these changes will create on your overall cash flow. For instance, if you're moving between states where the tax rate is substantial, consider the impact on your bottom line and revisit your budget to make any necessary adjustments.
  3. Healthcare costs: these can be unpredictable and have a major impact on your cash flow and expenses.
  4. Miscellaneous life events: you may also incur life events that impact your cash flow, either on a one-time basis or even continually. For instance, if your spouse dies, your monthly living expenses will decrease, and if your child gets married, you may have a hefty one-time expense to pay for the wedding. By developing and monitoring a budget during retirement, you minimize the possibility of cash flow issues that could otherwise constrain your lifestyle expectations.

This material was prepared for Visions Investment Services and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer. (Member FINRA/ SIPC). Insurance products offered through LPL Financial or its licensed affiliates. Visions Federal Credit Union (VFCU) and Visions Investment Services are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using the name Visions Investment Services, and may also be employees of VFCU. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of VFCU or Visions Investment Services.

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