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Editor’s Note: This story originally appeared on NewRetirement.
Estimating retirement expenses can feel like an overwhelming task. However, if you want a secure retirement, you need to predict how much you are going to spend. Some might say that trying to predict your costs for every month for the next 15-30 years is preposterously impossible. However, it is probably no surprise to tell you that the closer you can get to predicting the future, the better off you will be.
Budgeting is useful when you are working, but it is completely necessary for retirement and retirement planning. When you have a job, you can kind of get by month to month making ends meet. However, accurately projecting your retirement expenses will determine how much you need for retirement and, if you overspend, you face a real risk of running out of money.
Getting your retirement budget right is hard. Even budgeting for next month is difficult. Predicting what you will spend for your entire future retirement can feel overwhelming.
So, how do you tackle the seemingly impossible job of estimating your retirement expenses? Here are nine tips to make this monumental task more manageable:
1. Think in Yearly or Even 5-Year Increments
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When you think of a budget, you probably think about a monthly budget. However, documenting monthly expenses for 360 months (the number of months in a 30-year retirement) seems daunting.
The trick to any hard task is to break it down into smaller pieces. For your retirement budget, try thinking in one-, three-, or five-year increments.
What will you be doing for the first five years of retirement and what will that cost? What will be different in the next five? And so on …
To see how this type of budgeting impacts your retirement plan, you might want to use the NewRetirement Retirement Planner. This tool lets you document different levels of spending for as many different time periods as you like. This detailed and personalized approach will give you more reliable results about how much you will need for retirement.
2. Budget Based on the Phases of Retirement
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Another idea is to just budget for different phases of retirement.
Stage 1 — The Transition to Retirement:
For many people, the first stage of retirement is not retirement at all — it is the transition to retirement. In this phase, you may work part-time or have a retirement job and your spending will likely stay as it has been.
Stage 2 — Early Retirement:
The second phase of retirement is when your focus …….