Retirement Budget Can Help You Reach Goal
American Century Investments
Many people spend as much as one-third of their lives in retirement, so it's
important to plan carefully for the lifestyle you want.
A general rule of thumb says you will need 70% to 80% of your current annual
income each year you are retired in order to maintain your current
lifestyle. If your current gross annual income is $100,000, you could need
$70,000 to $80,000 per year in retirement.
The income you need can vary widely depending on the retirement lifestyle
you choose. Will you stay at home or travel the world? A retirement budget
can help you analyze your expected income and expenses.
Determine Your Income
Start by calculating your monthly retirement income, including all of your
retirement income sources. These may include:
- Your 401(k) or other employer retirement plan
- Social Security payments: Social Security sends annual statements of
estimated benefits to workers age 25 and older who do not receive Social
Security payments and have no pending Social Security claims.You can
request a statement at any time.
- Personal retirement savings and investments
- Full- or part-time work after retirement
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Estimate Your Expenses
The next step is to estimate your retirement expenses. Consider your current
expenses and how they may change after you retire. For example, you may
spend more on health care as you get older but less on items such as
clothing or vehicles.
The following categories may help you estimate your retirement expenses:
- Taxes (federal and state, real estate, personal property)
- Real Estate (mortgage payments, insurance, maintenance, second home
costs)
- Utilities (electric, gas, water, trash, phone,
cable/satellite/Internet
- Vehicles (loan payments, insurance, license, maintenance)
- Health Care (medical insurance, out-of-pocket costs, prescriptions,
glasses, vitamins)
- Personal Care (toiletries, cosmetics, haircuts)
- Food (groceries)
- Clothing (new clothes, laundry soap, dry cleaning, tailoring)
- Vacations (travel, lodging, food, entertainment, souvenirs)
- Entertainment (restaurants, tickets, movie rentals, books, CDs)
- Savings/Contributions (charities, education savings)
- Memberships/Licenses (golf or health club, social club, professional
organization)
- Miscellaneous (gifts, magazines, newspapers)
Analyzing your retirement income and anticipated spending can help you
determine whether your retirement plan is on track for your lifestyle goal.
You may want to review the allocation of your personal investments and
reallocate your assets if necessary. As with any part of your financial
plan, review and update your retirement budget each year (or more often if
there is a major change in your life).
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Fast Facts
Helpful Hints for Your Retirement Budget:
- Consider reducing or eliminating debt, such as your mortgage and
outstanding balances on credit cards. This can be a crucial step in using
your retirement income effectively.
- Plan how and when you are going to take distributions from your
employer's retirement plan or IRA. For example, if you have more than one
IRA, you need to decide how you want to divide any distributions you may
take among these accounts. When you reach age 70˝, you will be required to
take the first minimum distribution from your traditional IRA by April of
the following year.
- Review the potential costs of medical and long–term care insurance,
since you may no longer be covered by a group plan.
- Remember to account for any dependent support expenses you may have,
including expenses for elder care.
- Think about updating your vehicle insurance coverage. Your coverage
needs may change if you keep an older car or if you plan to drive less.
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This information is for educational purposes only and is not intended as
investment or tax advice.
Learn more about American
Century Investments
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