Why your pre-retirement budget won’t cut it any longer
Like many retirees, you may not have a home mortgage bond to pay off, or car loans to service. Perhaps your children have finished their tertiary education and are able to support themselves. These are just some of the common expenses you may have had prior to retirement that won’t be necessary to include in your retirement budget.
“There could, however, be expenses that you previously didn’t have. Your employer may have been paying or subsidising your medical aid premiums, which you now need to pay for,” adds Blom. “The bottom line is, you need to reassess your financial situation when you retire. This includes debt, assets, income and expenses. Draw up a realistic budget that you can live on for the rest of your life.”
Steps to drawing up your retirement budget
Step 1: Gather your documents
These include:
- Your final IRP5
- Your final payslip
- Your bank statements
- Your credit card statements
Step #2: Divide your expenses accordingly
Colour-code your expenses by portioning them into these five categories:
- Essential monthly expenses, in other words, medical aid, food, clothing and housing
- Non-essential monthly expenses, such as paid TV subscriptions, cell phone packages, Wi-Fi, gym and other subscriptions
- Annual expenses such as car registration fees and annual insurance premiums
- Irregular or occasional expenses such as Christmas and birthday gifts
- Discretionary spending, in other words, the fun stuff such as travel, hobbies and entertainment
“Don’t forget to account for additional healthcare costs, such as dental and hearing, and an emergency fund,” adds Blom.
Step 3: Create that spreadsheet
“You may want to divide your annual expenses into the 12-month period, and you could budget for Christmas gifts over a 6-month period instead of only in November,” suggests Blom. By listing your income amount(s) and every possible expense, you’ll be able to manage your money correctly and live within your means, she adds. “This, in turn, will have a huge impact on your financial security throughout your life.”
Should you ever adjust your retirement budget?
Yes, and here’s why: generally speaking, your expenses will change according to the stage of retirement you’re in. For example, you’re more likely to spend on travel in your earlier years, and medical expenses will probably increase in your later years. “You also may not be paying for as much life insurance at a later stage of your retirement,” adds Blom. “It’s therefore recommended that you review your retirement budget on an annual basis to make provision for factors such as inflation, and a decrease or increase in certain expenses.”
This is why a conversation with your financial planner is vital for reaching your short- and long-term financial goals.
Please consult with a financial planner before you take any action regarding your savings and investments.
Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.