How to Create a Sustainable Retirement Budget

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Your first big step toward retirement planning

By Matthew Camrud, CFP®

Whether you’re a young upstart, midway through your career, or fast-approaching your golden years, somewhere down the line, retirement is inevitable. And to enjoy the most secure, comfortable, and fulfilling retirement possible, early planning is essential.

According to a recent survey, more than half of American adults have less than $10,000 saved for retirement, while one in three have nothing saved whatsoever.

We know retirement planning, and the mere thought of retirement strategies, can be stressful—but if you want to truly enjoy life after your working years, it’s important to take the necessary measures early on.

So, where do you start? Well, the best retirement spending strategies start with a solid budget.

Creating a retirement budget will not only give you a deeper understanding of your expenses and how they may fluctuate over time, but it will also help you set achievable financial goals to work toward.

Here is some advice to help you get a better grasp on your spending in retirement and prepare for a bright and prosperous financial future.

Account for the “Retirement Smile”

Coined by retirement research expert David Blanchett, the “retirement smile” is a method of financial forecasting that gives you the power to plan based on the notion that your spending in retirement will decrease over time, before rising again due to possible health-related factors.

By understanding this concept, you can help form the foundations of your retirement budget. Here are the key takeaways:

  • You will typically see significant spending in the early years of retirement due to travel and a host of other active pursuits.
  • Your retirement spending will most likely decrease as you start to slow down.
  • Your overall retirement spending may ramp back up during later retirement as a result of medical and long-term care costs.

These three significant spending milestones, if displayed visually, dip before rising again, forming the appearance of a smile. By accounting for the cadence of your potential expenses, you will stand a greater chance of creating a successful retirement budget.

Build the Right Plan and Portfolio

While a budget is a key part of your plan, it’s not the entire plan.

After understanding your budget over the long-term, protect the money you’ll need from the volatility of the market by building the right portfolio—one that suits you and your personal circumstances.

One of the most effective ways to understand how much of your portfolio should be invested in bonds or capital preservation is through liability immunization.

By providing a sophisticated analysis of the next 10 to 15 years of an individual’s annual withdrawal needs and then calculating the present value of those outflows, we help retirement planners invest the right amount of funds in the right way.

Read more about our portfolio analysis methodology: Liability Immunization: Bringing Institutional Asset Allocation to Individual Portfolios.

Dig Deeper with Our Retirement Budget Worksheet

If you’d like a more comprehensive view of your potential retirement expenditures, drilling down and categorizing your various expenses is the only way to understand them in detail. It’s truly the best way to construct a retirement budget that works.

There may be lump sums you will need to consider for big life events or family milestones such as first cars or weddings. There are also essential expenses and discretionary expenses—those that can be considered optional or a luxury.

To get your retirement budget off to the right start and create a plan that will yield you the best results, download our Retirement Budget Worksheet.

Not only will our worksheet serve as a valuable retirement budget calculator, but you’ll be able to break down your various expenses with ease. You might even come across spending you’ve completely overlooked.

We hope these tips prove helpful as you look ahead to retirement. Prepare early on and you can reap the rewards years down the line.

Matthew Camrud, CFP® serves as an advisor at Brighton Jones.

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