What a Comfortable Retirement Budget Looks Like for a Homeowner at 62
People save and invest for decades until it’s finally time to retire. Then, these same people have to live off their nest eggs, Social Security and other income sources.
It’s an incredible jump to go from a salary to living on what you have, and some people feel the need to play small due to intense risk-aversion. This can result in people avoiding a comfortable retirement budget, even if they have the flexibility to stretch a little bit.
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The word “comfortable” means different things to different people. Here’s how homeowners can establish a retirement budget that is comfortable but reasonable.
A Comfortable Retirement Budget Is Not a Number
A comfortable retirement budget varies for each person. Ralph Estep Jr., a licensed public accountant and the founder of Saggio Management Group, explains the difference between penny-pinching and living a comfortable post-work lifestyle.
“The difference has almost nothing to do with the size of the number and almost everything to do with whether that number has a plan behind it," he said. "Penny-pinching is a posture of fear. It's when every discretionary decision runs through the same anxious filter: you skip the dinner out, you put off the dental work, you turn the heat down a couple of degrees, not because you chose to, but because you're afraid of what the balance might say. You're reacting to money instead of directing it.”
He then contrasted the penny-pinching mentality with living a comfortable retirement. It's not just about quality of life — although certainly that too. It's about the peace of mind that comes with it.
“A comfortable retirement is the opposite. It's when your essential costs — housing, healthcare, food, insurance, taxes — are reliably covered by predictable income and you still have a defined margin for the things that make life good: travel, the grandkids, hobbies, generosity to your church or your family. The dividing line isn't a specific dollar figure. It's whether your fixed costs are covered by dependable income, which frees the rest of your money to fund living instead of just surviving."
Give Every Dollar a Purpose
Establishing all of your essential expenses and their monthly cost helps you become more intentional with how you use your money. Clarity can lead to confidence and help you assess how much money you can use for discretionary items each month.
You can delay discretionary spending for some months so you can treat yourself to more expensive experiences and gifts in a future month. For instance, if you have set aside $800 per month for discretionary spending, you can avoid that type of spending for five months, so you have $4,000 available for a vacation in the future.
Assigning each dollar to a task isn’t just about staying on top of your finances. It can also lead to guilt-free spending.
“It lets you spend without guilt, because you decided the assignment in advance instead of reacting in the moment. A budget in retirement isn't punishment. It's your plan with math attached,” Estep said.
Budgeting for Market Volatility
Some retirees get caught by surprise if the market endures a sharp correction right when they want to withdraw from their nest eggs. This fear is part of the reason why people who could live comfortable retirements opt for the penny-pinching route, but Estep offers some suggestions to get around this risk.
“Separate your needs from your wants and make sure your guaranteed income, Social Security, any pension and a conservative, sustainable withdrawal from savings, comfortably covers the needs. That's your foundation and it should never depend on a good market year,” Estep said.
“Keep a healthy cash cushion, often one to two years of spending, so a bad market never forces you to sell investments at a loss just to pay the bills; that single move protects a retirement more than almost anything else."
He also warned people to monitor their healthcare and home maintenance costs.
“At 62, as a homeowner, those are the line items I'd want you to fund on purpose, before they surprise you. Revisit the plan every year."
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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