A Step By Step Guide To A Retirement Spending Plan That Works for You

If you’ve saved diligently for retirement, your hard-earned nest egg deserves an intentional spending plan. But as you likely know, it can be challenging to switch from a mindset of saving to spending.

That’s why Legacy Wealth works with individuals and couples preparing for, transitioning to, and enjoying retirement. Together, we’ll help you determine the best course of action for utilizing your savings in a tax-efficient and goal-focused manner during your golden years.

As you consider your spending in retirement, you’ll need a retirement budget. Here’s how to start building one today.

Step #1: Determine Your Income Channels

Perhaps the biggest question to ask yourself when preparing a budget is, “Where will my money come from?”

To answer, look at the income channels you’ll have in retirement, specifically your fixed and variable income.

Fixed Income

Fixed income refers to income that will not change in value. Because of this, you’ll know exactly how much you’ll receive each payout and (usually) when to expect it. Examples of fixed income could include Social Security, a paycheck from your job, a pension, and an annuity.

There are strategies to maximize these fixed income streams. For example, delaying Social Security benefit payouts will increase the monthly amount (up until the age of 70). Similarly, the distribution method in which you choose to receive your pension will impact your income in retirement. You may have options such as receiving monthly payments or a lump sum amount.

Liquid assets like an emergency fund or cash are considered fixed income as well. These should be included when determining how much income you’ll have in retirement.

Variable Income

In your working years, variable income could come in the form of commissions or bonuses. In retirement, they may be dividends from investments or other earnings that fluctuate like a rental property.

Variable income sources are, as they sound, going to change from payment to payment. For example, you may choose to withdraw more or less from accounts like 401(k)s or IRAs to meet your spending needs in retirement.

Combining Your Income Channels

Keeping these retirement income sources in mind, you’ll want to develop a withdrawal plan alongside your advisor. This plan will account for things that can dwindle your savings, like inflation and taxes.

Step #2: Define Your Lifestyle Goals

Having all the savings in the world will only get you so far. The next step is determining what you want your retirement to look like and how you can utilize your savings to make it happen. Your desired lifestyle in retirement will have an immense influence over your corresponding spending.

Start big with questions like, “Where do I want to live in retirement?”

Do you want to stay in your current home, move closer to your kids, or buy a house in your favorite city? The answer will be the first factor in determining what you’ll be spending your money on in retirement.

Are you looking forward to traveling the world right away? Or are you taking a few years to spend quality time at home?

Start narrowing in on more day-to-day expenses you’ll want to prepare for. Do you have expensive hobbies, like boating or horseback riding? With more free time in your days ahead, you should be able to continue doing the things you love.

Step #3: Break Down Your Daily Spending

Keeping the above retirement goals in mind, it’s time to get a bit more granular. In as much detail as you can, estimate costs for your projected expenses.

These could include:

Mortgage or rent
Groceries
Utilities
Cell phone, internet & cable bills
Insurance (life, health, auto, home, etc.)
Taxes
Debts (auto loans, credit cards, etc.)
Entertainment
Travel & vacations

A realistic look at how much you’ll be spending in retirement is crucial. This list serves as a checkpoint in your retirement savings journey by answering the question: Are you on track to meet your needs, or do you need to reconsider your savings strategy?

Step #4: Make a Plan to Meet Your Goals

If your current retirement savings doesn’t meet the demand of your projected expenses, prepare to make up the difference.

Whether you’re a few months or a few years away from retirement, there are some things you can do to give your savings a boost.

Max out contributions to your retirement savings accounts, including 401(k)s, IRAs, and HSAs. Those over 50 are allowed to make additional catch-up contributions. If you have the means to do so, use this opportunity to tuck away as much as possible. Remember that contributing to most non-Roth accounts will reduce your taxable income for the year the contributions are made.

If you’ve recently received (or plan on receiving) a large windfall such as an inheritance, property sale, bonus, or lawsuit settlement, consider putting a portion of this towards your retirement.

Remember, you can always reevaluate your current household budget for opportunities to re-direct spending towards retirement savings. You may also find it worth your peace of mind to continue working an additional year or two beyond your original retirement date.

Step #5: Spend Intentionally in Retirement

Above all else, let your goals and values guide your spending in retirement. At Legacy Wealth Advisors, we can help build a spending plan that’s unique and personal to you. If you want to spend more on a boutique gym experience, for example, let’s make sure it’s reflected in your budget. Whatever you find joy and value in, we’ll make it a priority in retirement.

Retirement should be your time to live life your way, without the restrictions of work obligations or financial uncertainty. If you’re excited to develop a spending plan that’s tailored to your retirement goals, get in touch with our team today.

Disclosure:

Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed.