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Budgeting for retirement can be a tricky task. Recent statistics show that nearly 30% of Americans over the age of 55 have neither retirement savings nor a pension plan in place. Though it can be difficult to play catch-up later in life, it is possible to create a retirement nest egg at any time.
Do you need to begin budgeting for your retirement years? Follow these simple steps to ensure that you'll have plenty of money saved up for your golden years.
Make sure you've got the essentials covered
Monthly essentials are the most basic retirement expenses. These essentials generally include rent or a mortgage, utilities, taxes and insurance, food, and transportation costs. To get an idea of what you'll need to save, you'll need to think about your general plans for retirement. Do you plan to downsize and rent an apartment or do you want to continue living in your current home? If you are planning to move to another city, state, or country, be sure to research the cost of living in your future destination.
To get an idea of your other monthly costs, look over your recent credit card and bank statements. When adjusted for inflation, these costs will likely remain the same into your retirement years. Plan to save accordingly.
Set aside money for healthcare and medical emergencies
For security and peace of mind, it is best to set aside a significant amount of money for healthcare costs during your retirement years. If you or your partner have any serious pre-existing health conditions, you will probably want to save even more money to account for major expenses like surgery or hospitalization.
You will also want to make sure that all of your basic healthcare costs are covered. Save money for annual eye exams, doctor's appointments, and dental visits. If your current employer has been covering the costs of your insurance premiums, you will have to account for this extra expense during retirement.
Note that healthcare costs are on the rise. The cost of healthcare has increased by a whopping 600% over the past 30 years. Due to the rapid rise in medical expenses, it is particularly important to set aside money for medical care during your retirement years.
Budget for hobbies and recreation
Retirees often state that, though they had budgeted for retirement necessities, they hadn't set enough money aside for recreational expenses. Expensive hobbies and vacations are two of the costliest leisure expenses incurred by most newly-retired individuals. In the first five years following retirement, many retirees spend a disproportionate amount of their savings on travel and other recreational activities.
When budgeting for recreational expenses, be realistic regarding your spending. If you know that you will want to travel the world during your retirement years, be sure to save a large sum of money to put towards this dream. Even smaller hobbies, like participating in sports at a local recreation center, may cost money. Most importantly, be sure to save enough money for the future years of your retirement. Even at 80, you will probably want to have some money to spend on your hobbies and interests.
Consider your parents and your children
Most individuals imagine that their retirement savings will be spent exclusively on their own needs and desires. This, however, may not always be the case. If you have particularly long-lived parents, you may need to factor in the extra expenses associated with a long life. Elderly parents with limited savings may need your assistance in paying for medical bills or retirement home expenses, for instance. It is always wise to set aside money for future expenses such as these.
An increasing number of retirees are also finding that they are spending money on their adult children. These adult children may have made poor financial decisions, graduated from college with debt, or may be struggling with unemployment. Though few parents want to be caught in this situation, it is not an uncommon one. If you know that your children are likely to need financial assistance in the future, it is best to set aside some money today. By doing so, you can reduce the amount of financial stress you will experience in the future.
Strive to save more than 10% of your monthly income
Set aside a large portion of your monthly income to put towards your retirement savings. Strive to save at least 10% of your monthly income. If you haven't saved much thus far, strive to set aside as much as 20-25% of your income each month. By doing so, you can better ensure that you will comfortably enjoy your retirement.
Contribute to a retirement fund
If you have never set up a retirement savings fund, do so as soon as possible. There are numerous types of accounts available. Whether you are self-employed, salaried, or working for an hourly wage, a retirement plan is generally the best way to save for retirement.
Individuals who have never set up a retirement savings account before should contact a financial planner. A professional can give you advice regarding the best retirement plan for you.
Though saving for retirement isn't easy, it certainly can be done. By budgeting out your monthly expenses and saving a significant portion of your monthly salary, you can ensure that you will have fewer financial worries during your retirement years.
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