Have you ever heard the saying, “It’s not how much you make, but how much you spend?”
Well, this applies to not only your working years, but your retirement years as well.
When managing your spending during retirement, we suggest you develop a budget and divide your living expenses into two categories:
• Essential expenses
• Nonessential expenses
Essential expenses pertain to your basic needs like food, clothing, utilities and health care. Conversely, nonessential expenses are your “lifestyle” expenses. They might include things like travel, eating out and entertainment.
This kind of simple labeling eliminates the dangerous shot in the dark approach. Knowing your “bare minimum” needed to maintain your basic lifestyle, actually increases your flexibility with nonessential living expenses. It enables you to withdraw just enough to cover your essential expenses. Once your essential expenses are covered, you decide how much to withdraw for your nonessential expenses. This amount can be less in lean years when your accounts are flat or down, and more when your investment returns are high and your essential expenses are covered. Breaking your expenses down into two simple groups can give you peace of mind about covering your basic necessities in concrete terms.
You may be fortunate to have sizable fixed retirement income with Social Security benefits or a pension. In this case, you may earmark these steady fixed income streams for essential expenses. Then you can relax, knowing you always have enough for your basic needs.
Originally published on November 10, 2015.
Advisory services are offered by Joslin Capital Advisors, LLC, an SEC Registered Investment Advisor.