Tips on how to successfully do budgeting when you are retired

Despite acting upon the advice of financial advisors, you may find it hard to figure out how much you will need to see you through retirement. If your health and fate support you, you can start your own small business to make some cash, but unfortunately, many people suffer from ailments in the advanced years of their lives and live off only their pension funds. Of course, you will have to be judicious about your money.

“Budgeting is key to staying on top of your expenses,” said Gabriel Williams, a 72-year-old retired man. “Financial advisors often recommend retirement income between 70 and 85% of your pre-retirement pay, but I profoundly disagree with it. This principle is subject to an assumption that your retirement life will not change. That’s completely daft to believe so. I can say that from my own experience.”

“Most people will not have enough retirement funds, so it is vital to analyse how your spending will change in your retirement life. Retirement will remove taxes, children expenses (if they have moved away) and commute expenses, but your medical expenses can go up,” he added.

It is paramount to “take stock of” what you have in your retirement funds and how you can adjust your expenses to your retirement budget. “That should be your first job to do when you retire,” said Gabriel.

Tips for successful budgeting when you are retired

Now little or no cash will be coming in. Most retired people hinge on interest income. It is quite obvious to be concerned about your capability to live off what you have. The following are few suggestions to make your budget last longer:

–Use a budgeting method that works for you

Budgeting is a must to ensure you live below your means. During the golden years of your life, you cannot afford to throw your caution to the wind. “It is likely that your mortgage payments are still due,” said the financial advisor. “Or you might be under other obligations. A rule of thumb says that you should create a budget that suits your financial situation.”

There are various types of budgeting methods, such as:

-Bare-bone budgeting

-Envelope budgeting

-60/30/10

-50/30/20

You should try out all these methods to learn which one works for you the best. It is likely that every month, you need to change your budgeting method. Keep tabs on your expenses to ensure you are not overspending. A budgeting app should come in handy when a manual budget sounds like a hassle.

There is no point in creating a budget if you do not build an emergency cushion. “Since you are living your retirement age, it does not mean that you cannot come across unforeseen expenses,” said Emma. “Your car might need a repair, for instance. Having an emergency corpus will help cushion their blow. If you need to rely on guaranteed car finance with no credit check, make sure to determine your affordability.”

–Defer your pension

“If you have other income sources such as rent,” said Emma, the financial advisor of 24CashFlow, “you should defer both state and personal pension. When you reach the age of state pension age, you will start receiving letters on how to claim it, but you do not have to straightaway withdraw your funds. The delay will lead to an increase in your annual amount.”

“Personal pensions work differently. You can continue to contribute to it unless you turn 75. Later on, if any pension providers allow you to do so, no tax relief will be granted,” she added.

It is suggested that you consult a financial advisor to learn the implications of deferring your pension. Bear in mind that the idea of deferring the withdrawal of pension funds may not be feasible when you do not have any other income source to live on during retirement.

–Determine your needs and wants

As you are living off your pension, you will have to keep a tight rein on your spending. Your basic expenses, such as groceries, housing, premiums, utilities and transportation, cannot be cut down. You should ensure that your monthly budget is capable of recovering your essential expenses.

There is no need to ban discretionary expenses, but cutting back on them is often advised. The lower the discretionary expenses, the easier it will be for you to manage your budget.

“You can be caught unawares by unexpected expenses,” said Emma, “so you should stow away money for them too.”

–Release some equity

“Releasing equity is advisable only when you are in dire need of money, and a loan is not a favourable option,” said Emma. “Downsize your house as it will help release a lot of equity, probably a good option when you are living only with your partner and your children have moved away.”

Take financial advice before making any decision. There could be long-term implications of releasing equity. Things are generally more intricate if your mortgage is not over yet. A lot of factors are out there you need to look at before choosing to release equity.

–Continue to work

“My advice to those who are about to reach the retirement age is to continue to work if they are not confident about their retirement savings,” said the financial advisor. “You can increase the value of your contribution by up to 20%. Understand the implication on your tax.”

The bottom line

 A retirement budget will help you “keep the wolf from the door,” but it may take a while for you to get to grips with your financial condition. Defer your pension withdrawals and continue to work if you can. Make sure you create a budget that suits your current financial situation. Cut back on your spending and stop relying on debts. You should take out debt consolidation loans in the UK with bad credit if you have outstanding debts. It is a smart move to get rid of debt before you retire from work.