Retirement planning: How to create a retirement budget and spending plan?

Financial planning is something that everyone must practise, and retirement planning is part of the exercise. Retirement financial planning can make or break your sunset years. A retirement spending plan gives you a systematic idea of the funds you will use on various expenses so that you don’t overspend unnecessarily and end up feeling helpless. 

An insured retirement plan will give you the confidence to lead a pleasant retired life in peace, knowing that you have saved enough for various upcoming expenses. Having a retirement investment plan in place is essential, both for growing your wealth and reaping its benefits when you need it the most.

Read on to discover a retirement spending plan and how you can create one. 

Start with an estimate of the income you will need
 

To start with, calculate the money you will need post-retirement. A simple and straightforward approach is to take 70%-80% of your pre-retirement annual income and consider this a reasonable retirement budget. For example, if you are earning Rs 12 lakh p.a. just before retirement, an amount between Rs 8.4 lakh and Rs. 9.6 lakh will be a sufficient retirement budget. Divide this figure by 12, and you will get an idea of how to plan a retirement budget on a monthly basis.

List down your expected spending
 

Your expenses are likely to remain unchanged even after retirement. However, to narrow down on a ballpark figure of your expected monthly spending post-retirement, categorise all your expenses under three major heads.

1. Essential expenses include food, clothes, housing, healthcare, etc.

2. Non-essential expenditures include monthly TV cable bills, gym membership, mobile phone recharge, and other subscriptions

3. Essential non-monthly expenses such as insurance premiums, property tax, car/bike registration, etc.

Add up all these to get an annual expense figure. This step-by-step approach will help you in your retirement financial planning.

Consider expenses that will change after retirement
 

Even though it is difficult to pinpoint precisely which expenses will remain constant and which ones will require reducing or cutting down completely, doing this activity will take you much closer to an appropriate retirement spending plan. You can easily forgo certain expenses you are sure will not accrue once you retire. For instance, your eating habits may change substantially, wherein you may prefer simple home-cooked meals to eating out. This will cut down your food expenditure considerably after retirement. Another example could be your clothing, as casuals will replace formal office wear. 

On the other hand, you will also want to account for certain expenses that could increase after you retire. For example, you may want to visit your relatives or friends in another town every few months, which will increase your travel expenses. Or you may want to resume a hobby (say, photography or music) that you didn’t have time for earlier. So, account for equipment costs and/or classes. An insured retirement plan will ease your worries and give you more time to focus on what you enjoy doing.

Factor in other significant lifestyle changes
 

Once you retire, you will have more time to tick off the various things on your bucket list. It is advisable to save as much as you can right now so that you are in a position to pursue your interests after retirement. For example, if you wish to take up an independent consulting role, it may require you to spend a lot of money to set up a home office, and this should be included in your retirement spending plan.

It is also important to consider other lifestyle changes that may affect you post-retirement, such as healthcare costs. Visits to the doctor tend to increase as old age usually brings certain health issues in its wake. Further, many older couples experience an empty nest syndrome when their children move out and lead independent lives. During such times of loneliness and/or physical dependence, it is important to hire help who will be around to take care of you. This is also a significant lifestyle change and will be an added cost.

Conclusion

The retirement planning process is an important activity that each of us should take up right at the beginning of our careers. It is not a one-off exercise. You must revisit budgeting for retirement often to account for inflation and other spending. You could also consider having a retirement investment plan in place to reap long-term benefits. Metra Trust provides a plethora of investment opportunities that help you seamlessly plan your retirement. Products such as mutual fund investments, investment-linked insurance, health insurance, savings plan, annuity plan etc., are geared toward helping you retire in comfort. Contact us today to know more!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.