Planning Your Retirement Budget
Although your retirement may be in the distant future, the sooner you begin planning and saving, the better off you’ll be. It’s wise to create a retirement budget and work with a financial advisor to determine whether you’re on track to meet your saving goals. According to the 2023 Retirement Confidence Survey, 8 in 10 workers are concerned that the increasing cost of living will make it harder to save money for retirement. Fortunately, Dominion Energy Credit Union is here to help. Start by preparing a retirement budget to understand how much you’ll need to save.
How Much Does It Cost to Retire?
Several factors influence the amount of savings you’ll need to retire comfortably, including your retirement age, spending habits, inflation and where you live. For those looking to retire in Virginia, you should budget at least $725,399 for retirement, with an average of $48,435 in expected annual living expenses. This information can be a good baseline to determine whether you’re saving enough money in your 401(k), IRA or other savings accounts.
Create Your Retirement Budget
To be sure you have enough money to retire, it’s important to create a retirement budget. The first step is to determine your retirement income. Financial advisors recommend having more than one source of income during retirement. Retirement income may consist of the following categories:
- Earned income: This includes all forms of taxable compensation or revenue, such as salary, wages and tips.
- Unearned income: This consists of payments like Social Security, pensions, annuities, government benefits such as unemployment or disability, and any interest income from savings accounts, certificates, or investments. Distributions retirement accounts like your 401(k) and IRA are considered unearned income.
Add up the earned and unearned income you expect to receive during retirement, then determine your expenses. We recommend looking at your last 6 to 12 months' worth of account and credit card statements, as well as last year’s tax returns. Having copies of your most recent pay stubs can be helpful for reference as well. Next, group your expenses by type. Here are some typical categories you can use to create your retirement budget spreadsheet:
- Housing: This should include your mortgage or rent, property taxes, insurance, utilities and any condo fees or other fees that apply.
- Food & Entertainment: Estimate your average monthly food and entertainment expenses, including grocery bills, restaurants and entertainment, such as streaming services, vacations and any monthly memberships you hold.
- Personal Care: Calculate what you expect to spend on clothing, toiletries and other personal care items.
- Transportation: Add up your vehicle payments, auto insurance, gas, registration fees and public transportation fares to determine your total transportation expenses.
- Healthcare: Healthcare can make or break a budget because it’s often the most significant expense during retirement. Consider the possibility that healthcare costs may change, especially between ages 60 and 65, when you become eligible for Medicare. Costs include routine visits to the doctor, prescriptions, dental care, eye care and hearing. Build in a buffer to give yourself a cushion for emergencies.
- Charity & Gifts: Many people feel compelled to give back to their communities. If you’re tithing, donating to charity or gifting money to family members, factor this into your budget.
- Emergency Savings: An unfortunate fact of life is that things go wrong all the time. Stash some extra savings to fix broken appliances, cars, computers and more.
Developing a retirement budget will give you a clear picture of the amount of money you’ll need to live out your golden years and what you should be saving today. Dominion Energy Credit Union offers several ways to help you save for retirement, including savings accounts, money market accounts, and certificates. Use this retirement calculator to see how long your savings will last and whether you need to up your contribution. The Social Security Administration also offers calculators to help you get a sense of your monthly Social Security benefits.
The team at Dominion Energy Credit Union can help you learn more about savings options that can help supplement other investments so you can be one of the two-thirds of workers who feel confident about their retirement savings. Contact us or visit one of our branches to get started.