You have to live within your means to stay retired. We’ll show you how to do the numbers. The rest is up to you, but understand this: Of all things that can affect your retirement–taxes, inflation, medicare changes, Social Security changes, etc.–the thing that gives you the most control is your budget. The surprising thing is that a budget makes your retired life better. You’ll reduce stress, and you can focus on funding things you want to do.

Gather Data

  • 12 months worth of bank account statements
  • 12 months worth of credit card statements
  • Current income
  • Your tax returns for the last two years

Download a budget spreadsheet. Here’s one I like: Budget Spreadsheet

Now add in these elements:



Essentials: Food, mortgage payments, transportation, health care, car and home repairs. Essential isn’t the same as a fixed expense. Food is an essential, but it’s variable–you can eat beans, oatmeal and cornbread, or you can eat steak.

Non-essential: Cable TV, subscriptions, cell phone, subscriptions, memberships–any monthly expense you could elect to eliminate, whether you want to not.

Fixed: Property taxes, insurance premiums, auto registration, etc. Many fixed expenses are yearly expenditures. Convert them to monthly by dividing by 12. You should also consider the eventual replacement of your vehicles. Cars and trucks are pretty expensive these days. If you need a replacement in five years you can take the expected cost and divide by 60 to add it to your budget on a monthly basis, or divide by 5 and put it in a specific month. Most people find the monthly expense is something they are less likely to ignore if they’re doing budget planning.

Medical: Prepare yourself for a shocker. Until you qualify for Medicare at 65, your healthcare premiums are going to be expensive. Even after medicare kicks in and you add a supplemental plan it’s likely to be in the neighborhood of $1000 per month per person and rising.  Do some research now, so you can add a reasonable estimate to your plan. Include dental and any other special medical costs you expect.

Family: Even if your kids didn’t fail to launch, you are probably the easiest source of loans. Loans to kids tend to stay unpaid. You should plan for some family expense even if it’s counter to your philosophy. If your kids can’t pay for their medical insurance, covering that could be a defensive move that saves your retirement. Are you going to say “no” if their life is at stake?

The good stuff: Travel, hobbies, restaurants, etc.

Now just subtract expense from income.  If your remainder is negative, you have work to do. If it’s positive, you can reallocate some of it or just choose to save it. If you are retired, you can treat 3 percent of your savings per year as income. If your investment allocations are appropriate, that should almost guarantee you won’t run out of money before you kaack.
One worthwhile exercise is to examine the percentage of your budget that is fixed. Add those expenses together and divide by your total expenses to see the percentage of fixed expenses. Remember that fixed doesn’t mean perpetual. If your percentage feels high it could be the motivation you need to downsize your house, get rid of a car, review your insurance. A good retirement is a flexible retirement.


The Retirement Trap Copyright © by Bill Babcock and Babcock, William. All Rights Reserved.

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