We all spend many years saving for our retirement, so once we reach that age we can relax and enjoy without having to stress over money. But creating a retirement budget is important if you want your retirement fund to last for decades. Also, find out which are the average retirement savings of Americans in each stage of their lifes.
Planning your finances by creating a retirement budget will improve the way you use your money, making the most out of it. With a well-crafted plan, you will most likely be able to afford all your expenses and yet have plenty of room for fun. There are a few things you need to consider to create your retirement budget, but once you sort it out, you also improve your peace of mind. A common mistake many retirees make is spending too much, too soon.
Determine your fixed expenses
The first step to create a retirement budget is to find your fixed expenses. Find your bank account statements for the last 6 or 12 months, your credit card statements for the last 6 or 12 months, the last two pay stubs (if you or your spouse is still employed), and your last year’s return tax. Compare all these documents to find any recurring expenses, whether they are monthly, quarterly or annual payments.
You can use highlighters to group your expenses as follows:
Essential spending, like food, housing, utilities, transportation and health care
Non-essential monthly expenses, like TV cable bill, gym membership, cell phone plan or any other subscription
Required non-monthly expenses, such as property tax, insurance premiums, auto registration and any other annual payment. Add all of these up and divide by 12, so you can include it in your monthly budget.
Once you have determined all these expenses, create a spreadsheet and add each expense each month so you can visualize what bills or payments you need to cover from January to December. Add up all the items for each month and you’ll get your monthly fixed costs.
If you retire before 65, you’ll need to find a health insurance before Medicare kicks in. Include this in your budget. Don’t forget about dental, vision and hearing care. Estimate your health plan expenses as well as the cost of medication and include it in your budget.
‘All work and no fun’? Definitely NOT!
Every budget has a flexible part, and that is the fun part: of course that your budget will include money for fun activities such as travel, sports, or entertainment. Think of all the activities you enjoy doing and how frequently you’d like to do them.
If you like to go out for dinner, estimate a monthly cost for that and include it in your budget under the Flexible category.
Now that you have all this information, you need to determine what percentage of your retirement income will go towards fixed expenses and how much is left for flexible expenses.
To do this, you need to total your fixed expenses, total your non-fixed and flexible expenses separately and divide your fixed expenses into your total expenses.
AVERAGE RETIREMENT SAVINGS
When we say it is important to start saving as early as you can, we say it because if you start at an early age, you have more time to put compound interest to work. As you grow, you will have more saving power but less time to put compound interest to work. So even if you start with a little money, you’ll be on your way to build your retirement savings.
Here’s the average Americans save in each stage of life:
On your 20s
The average saving is $16,000. During this stage, most people are paying student loans and building a professional career. The best plan during your 20s is to focus on eliminating your debt and increasing your income. It is also a great stage to learn new things, take courses and develop skills that will make you stand out when it comes to job search.
On your 30s
The average saving is $45,000. At this stage, you probably no longer have an entry level job, so you have more saving power. But keep in mind you probably have more obligations too: marriage, kids, and mortgage. Make a financial plan to keep your finances balanced.
On your 40s
The average saving is $63,000. At this stage, you are probably at the prime of your career. Financial experts recommend that at this stage you have saved at least 2 to 4 salaries.
On your 50s
The average saving is $115,000. Retirement gets closer, but you still have to time to save. It is the perfect time to max out your retirement accounts as this is probably the peak of your saving power.
On your 60s
The average is $172,000. If you are falling behind, you’ll depend primarily on Social Security benefits that are around $1,400 per month. Max out all your retirement options as much as possible before you retire.
Now you know, on average, what’s the ideal amount of money you should have saved by the end of each stage. The good thing is that if you are not there, you can adjust your plan to get as close as you can to these numbers.