Budgeting in retirement
Part of enjoying retirement is not having to worry about money. Running out of funds is a common concern among retirees, and living within a budget can help you extend your financial resources like super and other investments over what will hopefully be many years.
A handy benchmark to get started with a budget is the retirement living standard put together by the Association of Super Funds of Australia. It’s updated several times a year, and it puts a dollar value on the main living costs retirees face. Use it as a guide to develop a budget of your own, and finetune the numbers to reflect your lifestyle. You may want to allow a bit extra for travel, dining out or hobbies like golf. Or maybe you’re likely to spend less on things like clothing or health care.
Budgeting in retirement isn’t just about managing day to day living expenses. You also need to plan ahead to manage major costs like upgrading your car. Some creative thinking here can help. You may find you can extend out the time until you need to replace a car. Maybe you’re happy to buy a used rather than new vehicle. Or, after crunching some numbers, you could find that you can get by using Uber, taxi or a car sharing service like GoGet – and still be in front financially compared to running a car of your own.
What matters is that you give some thought to how you will handle any big expenses that lie over the horizon. Simply hoping it will all work out can be a recipe for disaster.
What’s interesting about retirement is that our spending doesn’t tend to be the same year after year. In my experience, spending tends to be higher in the early years of retirement when people are more likely to head off on a major trip, splash out on a new caravan or boat, or just celebrate their new-found freedom with more dining out.
After a few years, spending tends to settle into a more predictable pattern, often with fewer major outgoings. Being aware of this possible change in spending patterns can help you draw up a realistic budget.
After you’ve worked out a retirement budget, it can be a good idea to test drive the numbers, while you’re still working. This can show whether your budget – or your retirement lifestyle – needs to be finetuned.
If you're retired or approaching retirement you may be interested in Paul Clitheroe's Planning for Volatility When You're Retired
[1] https://www.aihw.gov.au/reports/australias-welfare/income-support-payments-for-older-people
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
Budgeting in retirement is crucial because it helps you manage your financial resources, like super and other investments, ensuring they last throughout your retirement years. It allows you to plan for both everyday expenses and major costs, reducing the risk of running out of funds.
The retirement living standard, developed by the Association of Super Funds of Australia, provides a benchmark for the main living costs retirees face. It is updated several times a year and can be used as a guide to create a personalized budget that reflects your lifestyle and spending habits.
To manage major expenses in retirement, plan ahead and consider creative solutions. For example, you might delay upgrading your car, opt for a used vehicle, or use services like Uber or car sharing instead of owning a car. This proactive approach helps avoid financial surprises.
Spending in retirement often starts higher in the early years due to activities like travel and dining out. Over time, it tends to settle into a more predictable pattern with fewer major expenses. Being aware of these changes can help you create a realistic budget.
A practical strategy is to test drive your retirement budget while you're still working. This allows you to see if your budget aligns with your desired lifestyle and make necessary adjustments before fully retiring.
Adjust your retirement budget by considering your personal interests and lifestyle. Allocate more funds for activities like travel or hobbies if they are important to you, and reduce spending in areas like clothing or healthcare if you anticipate lower costs.
When planning for big expenses, think about potential future costs and how you will handle them. Avoid relying on hope and instead create a plan that includes saving for these expenses or finding alternative solutions to manage them effectively.
Paul Clitheroe is the Chairman of InvestSMART and a chief commentator for Money Magazine. His insights, such as planning for volatility in retirement, can provide valuable guidance for retirees looking to manage their finances effectively.
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