Just like starting your first job, getting married or having kids, retirement will change your life. Some changes are small, like sleeping in or shopping during regular business hours. Others, however, are significant and worth examining ahead of time…like how much you’ll spend each month or each year.
An Employee Benefit Research Institute study offers some good news for prospective retirees. Household spending generally drops at the beginning of retirement — by 5.5 percent in the first two years, and by 12.5 percent in the third and fourth years. On the other hand, a significant portion of households — nearly 46 percent — actually spend more in the first two years of retirement.
So, have you considered how you’ll spend money once you retire?
Prepare a Post-Retirement Budget
Like a fiduciary choir, financial advisors all sing the same refrain: Start young; save and invest regularly to meet your financial goals. If you do, making the switch from saving to spending in retirement can be easy. But, in order to plan, you need a budget.
The first step toward a post-retirement budget is a review of what you spend now. For a few months, track how you spend your money. Don’t forget to include periodic costs, like car insurance payments or property taxes. By looking at your current spending patterns, you can get an idea of how you’ll spend money come retirement.
Then, consider your current monthly income, and estimate your post-retirement income. If your post-retirement income is less than your current income, you might want to plan to adjust your expenses or even consider changing your retirement plans.
We have monthly expense and income worksheets to help with this exercise. You can print them out and start planning ahead for post-retirement spending.
For those of you who carry smart phones, Forbes put together a list of popular apps for tracking your daily spending. All of them are free, though some do sell extra features. Many of them can automatically pull in information from your bank and credit card accounts, but if you’d rather avoid that exposure or if you use cash regularly, we recommend you try an app that lets users enter transactions manually.