Many people will retire with decent sums of money in the bank. Although while these numbers can sometimes seem huge, and can make you feel like you have unlimited money to spend on your “big holidays”, they aren’t always as big as they seem. Retirement usually occurs around 65 years old. If you live until you are 90, you need to be able to survive off your retirement money for at least 25 years.
Let’s assume that you retire with $1 million in the bank – sounds like a lot right? Ignoring complex factors such as interest and other income, it actually only equates to $40000 per year. This is barely enough to cover day to day expenses, let alone to allow you to travel and explore the world (or fulfil any other retirement dreams you may have). So what are the best ways to manage your retirement expenditure to ensure that you have enough money for a long, enjoyable retirement?
Start with good habits!
It is important for new retirees to realise that they do have a finite amount of money and that they can’t withdraw too much without depleting their funds. A good rule to follow is the 4% rule: take out no more than 4% of your money each year. This means that it will last for around 25 years, even if you don’t invest it. If times are tough, then you may decide to withdraw a little less. However, if things are going better than expected or you have come into unexpected money, then you need to be able to withdraw some of this to treat yourself!
Ok, maybe investing your entire retirement savings isn’t going to be the best idea, but putting some of it in a safe place where it can continue to make you money certainly is. This will ensure that you continue to have an income during retirement, and that you will be able to enjoy your time off.
Budgeting is extremely important, as it allows you to get a feel for what your monthly or yearly costs are going to be. You don’t necessarily have to follow your budget exactly, but it can be a good idea to know roughly what you are spending. It is important to set aside a little money when you budget to cover unforeseen expenses. Sometimes things can come up such as doctor’s bills, car accidents, or house repairs, which are not included in your budget. If you don’t use this money during the course of the year, treat yourself to a holiday!