How to budget in your retirement

Whether you're still dreaming about the day you stop working fulltime or already enjoying your retirement, considering your retirement budget and breaking down what it will look like is critical.

It can also be enjoyable. After all, you've been building your nest egg over the course of your working years and now you get to figure out how to spend it and what your retirement years will look like. Maybe you've been saving for your golden years so that you can travel or maybe you plan on enjoying staying close to home and being an active part of your community.

We walk you through how to plan for essential expenses in your retirement like housing costs, the potential need of long-term care, and health and dental care expenses, while helping you think about what sort of discretionary spending you want in your budget so you can enjoy your retirement.

Financial planning activities like budgeting aren't the most exciting things to spend your pre-retirement or post-retirement time doing, but they are critical components of making sure that you are living within your means and won't struggle to pay your bills now or in the future in your retirement. They also help you create a spending plan that makes you feel safe living your retirement life to the fullest without having to worry that you'll run out of money by overspending. Budgeting in retirement can help you enjoy your time with less stress. With the average retirement age in Canada 64 in 2019, you could spend decades in retirement. It's important to know how to spend them securely.

When it comes to budgeting in retirement, most people think that the most important thing to consider is your spending. But that's only one side of the equation. Before you can create a budget, you need to understand what money, distributions, and assets you'll have access over the course of your retirement life. Knowing your net worth is a key first step and you can work with a Scotiabank advisor to help you calculate it and understand your retirement income. It’s important to know things like your pension plan's payments, annuities, government benefits, life insurance loans or dividends, the requirement minimum distributions every year for your retirement accounts, any other investment income, and income from part-time work that you might still do in retirement.

A good rule of thumb is to use a budget retirement worksheet and input how much income you can expect to be coming in annually via a lump sum or monthly. This is important to know that you also understand your retirement cash flow.

Now, it's time to start filling in the expenses portion of your budget retirement worksheet. To do this, you need to think through the things that you need to pay for monthly, which will vary based on your situation. These are things like rent or mortgage costs, utilities, groceries, car payments, gas, phone plans, internet access, recurring medical expenses like prescriptions or appointments, insurance, and anything else that you are obligated to pay.

Afraid you've missed something? Look through the last few months of statements from your savings account, chequing account, and credit cards. You can also use an online budget retirement calculator which usually will suggest expenses to consider and add. Many people find that their expenses go down after they retire, so make sure to factor that in. If you're currently paying hundreds of dollars a month towards commuting and parking near your work, that could free up money! You might also plan to downsize your home or sell one of your cars at some point in your retirement so be sure to consider how that might impact your retirement expenses.

One important thing to remember about budgeting in retirement is to add in things that you don't pay for often, but you will need. For example, if you pay your home insurance or auto insurance in a lump sum once a year, it would be an unpleasant surprise when you realize that you need to pay it if you didn't include it in your budget. Think through your annual or non-monthly expense like annual subscriptions, quarterly medical appointments, income tax payments and other non-monthly expenses and add them to your budget retirement worksheet.

Now that you've thought through all your essential expenses, you can start budgeting for the fun things in your life. These are non-essential monthly expenses or things like eating out, entertaining people at your home, buying clothes, golfing or paying for other exercise or sporting fees - basically anything that you do monthly that you really enjoy that goes beyond the basic necessities. How much of this stuff do you have the capacity to direct your funds towards? It will all depend on how much money you have left over each month after your necessary expenses.

Stretch your dollars by prioritizing things that bring you the most joy for their price or splurge on the thing that will most improve your quality of life overall. For example, your golfing membership might be more important to you than eating out. Once again, using a budgeting retirement calculator can help you add in things you might have forgotten to budget for - like gifts for friends or your grandkids.

Budgeting for healthcare in retirement is critical and something many people don't think enough about. Having an emergency health fund ensures that your retirement plan won't be dragged off course if you develop a health issue. Even if you have a supplementary health plan, the expenses of things like physiotherapy appointments, long-term care, or assistive devices can quickly add up. Put aside money every month from your retirement budget into a fund for health care costs so that you don't regret not budgeting for health care later on

Ensuring that you'll have future adventures to look forward to by budgeting for travel in retirement. This is the fun part of financial planning. Where have you always wanted to go? What have you always wanted to try and explore? Some people put aside a certain amount each year from their annual account distributions as a way of budgeting for travel in retirement, whereas others choose to set aside a little each month. Have a separate account where you keep track of how much money you have to travel and use that as a starting point for travel planning.

Retiring can be stressful if you don't have a budget. After all, you won't know how much money you have to spend and so you could worry about overspending and running out of the money you'll need in later years to support yourself. But if you use tools like a budget retirement worksheet and a budget retirement calculator and seek the help of your financial advisor to give you a holistic view of your assets, net worth, income and budgetary plan, you'll be able to relax and enjoy your retirement.

Just remember to protect yourself against potentially unexpected expenses by budgeting for healthcare in retirement and continue to seek out adventures by budgeting for travel in retirement. If you are on top of all that, you won't just have a secure retirement, you'll have an enjoyable and fun one, too.