Retirement planning should begin as soon as possible, and it requires regular effort throughout your working years for the best results. Preparing a budget for this period of your life is an essential step if you want to avoid unnecessary financial hardship. However, it can be challenging to identify all potential expenses that you may have years or decades in the future. It may be equally difficult to determine what the cost of each line item in your budget would be. You can properly plan for retirement by creating the most accurate budget possible at this time, but remember to review and update the budget periodically. These are some essential steps to take as you prepare your retirement budget.
Plan for Traveling and Hobbies
Traveling, hobbies and leisure activities are not necessities in retirement. Some people will prepare a bare-bones retirement budget because they want to estimate the minimum amount of money necessary to leave the workforce. However, your quality of life in retirement will be dismal if you do not allocate funds for things that you enjoy. If you budget for these extra expenses now, you likely will have enough money to enjoy the life that you really want to have after you leave the workforce.
Think about Long-Term and Aged Care Services
Medical and healthcare expenses may be one area that many people underestimate or completely overlook when they are planning for retirement. Remember that your need for medications may dramatically increase as you get older. You may need additional doctor appointments as well as lab tests, hospital visits and more. Many older adults also will require long-term or aged care services for lengthy periods of time. If you intend to get insurance for these needs, remember to allocate funds for the deductible and all related out-of-pocket expenses.
Adjust for Inflation and Downturns
Another factor that is easy to overlook when you are budgeting for the future relates to economic factors that are outside of your control. You cannot know what the inflation rate may be or how severe any downturns may be. However, you can make reasonable or even conservative estimates in these areas so that your budget takes them into account.
Remember that retirement planning will not produce exact results that you can accurately anticipate. Your return on investments, the tax rates over the years, inflation, your retirement expenses and more are all moving targets. Because of this, you should regularly review your budget and make adjustments as needed.
Brooke Chaplan is a freelance writer and blogger. She lives and works out of her home in Los Lunas, New Mexico. She loves the outdoors and spends most of her time hiking, biking, and gardening. For more information contact Brooke via Twitter @BrookeChaplan.