Broker Check

Ready to Jump Into Retirement

June 11, 2021

     I’m not a skydiver, but doesn’t it just make sense, that before you jump out of a perfectly good airplane, you make sure you’ve packed your parachute really, really well? You’ve finally decided to pull the trigger and make it official. You are RETIR­ING! With retirement you are faced with a whole new set of challenges and the biggest one you should focus on is setting up a budget. Now more than ever, you need to pay close attention to how you’re spending your cash.

     The worst thing you can do, is bury your head in the sand and pretend like everything is OK. The sooner you get a clear picture of what your monthly expenses will be, the sooner you can take the bull by the horns and get your retirement spend­ing under control. I promise, if you follow these simple steps, the process of creating a sound spending plan, should be much less painful than you think.

     There are three types of ex­penses we all have. Fixed, Vari­able and Discretionary. Start by listing your Fixed expenses such as a mortgage payment, car pay­ment, etc. The second type of expense is Variable. Just like your Fixed expenses, these are necessary and ongoing, how­ever they may fluctuate from month to month. Things such as your electric bill, water bill and groceries are examples of Vari­able expenses.

     Finally, Discretionary expenses are what will make you or break you in retirement. After plan­ning for your Fixed and Vari­able expenses, you really should plan for Discretionary spending as well. Things like vacations, or dining out, going to the movies and even hobbies all make life enjoyable. But don’t get caught enjoying what you cannot afford and run the risk of jeopardizing your most basic retirement life­style.

     Don’t for­get to include expenses that may occur less frequently than every month. Things such as your homeowner’s insurance and property taxes, estimated repairs for your home or car, annual gym memberships, etc. For many people, neglecting to plan for these expenses may catch you by surprise and force you to put those charges on a credit card and that’s the begin­ning of the debt spiral that many people find themselves in.

     Now that you’ve got a pretty good idea what your monthly living expenses will be, you need to see how much income you’ll have. First, list your ongoing income sources, such as social security, pension income, or income from real estate. If you have retirement investment ac­counts, like a 401k, you may consider using a 4% withdrawal rate as a metric to determine how much you can safely pull from your investments without running the risk of depleting your portfolio in retirement.

     After calculating your in­come and expenses, if you find you are running short every month, you will need to make some tough choices and look for ways to reduce your Discretionary spend­ing. More and more people today are “cutting the cord”, meaning they cancel their cable subscription and stream their favorite shows from Netflix, or Sling. An­other way to save a few bucks is to drop your land line and only have a cell phone. If you have different accounts such as a 401k, Roth IRA or taxable brokerage you may consider strategically pull­ing from different sources to minimize your overall tax liability.

     Getting control of your spending as soon as pos­sible is critical to the suc­cess of a retirement income plan. I hope this information will offer some guidance to help you prepare your retirement parachute.