Retirement should be a time for relaxation, hobbies, and enjoying the fruits of your labour. But let’s face it—without that regular pay check coming in, managing your finances becomes a crucial part of your new lifestyle. Creating a realistic budget is key to living comfortably and making sure your money lasts throughout your retirement years. So, let’s walk through some easy steps to help you create a budget that balances your income, expenses, and financial goals!

1. Understanding your income sources

The first step to crafting a retirement budget is knowing where your money will come from. For many retirees in Australia, income might come from one or more of these sources:

Superannuation: This is likely your main source of income. Depending on how you’ve set it up, you might receive regular payments or make withdrawals as needed.

Age pension: Many retirees qualify for the Australian Age Pension, which offers financial support if you meet certain income and asset thresholds.

Investment income: If you’ve invested in shares, bonds, property, or term deposits, these can provide you with a nice stream of income during your retirement.

Savings: Your personal savings, whether in a regular savings account or a term deposit, can help cover living expenses.

Part-time work: Some retirees decide to work part-time to boost their income and stay active.

Once you’ve identified all your income sources, add them up to see how much you can expect to receive each month or year. This will form the backbone of your retirement budget.

2. Estimate your living expenses

Next up, it’s time to estimate your living expenses. Break these down into two categories: essential expenses (the stuff you need) and discretionary expenses (the things you want). Be honest with yourself about your spending habits and plan for both fixed and variable costs.

Essential expenses (needs):

Housing: This includes your rent or mortgage, utilities, and maintenance. If you own your home outright, don’t forget to budget for rates, insurance, and upkeep.

Food and groceries: Basic groceries and household items should definitely be on your list. Tracking your spending for a few months can help you get an accurate estimate.

Healthcare: As we age, healthcare costs can creep up. Make sure to include costs for private health insurance, prescriptions, and any medical treatments or appointments.

Insurance: Budget for your home, contents, vehicle, and life insurance premiums. These ongoing expenses can add up in retirement.

Transportation: This covers car payments, fuel, public transport, and vehicle maintenance. If you plan to travel less in retirement, you might see a drop in these costs.

Discretionary expenses (wants):

Travel: Retirement is often the perfect time to travel! Budget for holidays, flights, accommodation, and some spending money.

Entertainment and leisure: Whether it’s dining out, attending events, or indulging in hobbies, set aside a reasonable amount for fun activities.

Gifts and donations: If you enjoy giving gifts or supporting charities, factor these into your discretionary spending.

By listing both your essential and discretionary expenses, you’ll get a clearer picture of where your money is going and where you might need to adjust.

3. Adjust your budget based on your income

Now that you’ve got your income and expenses laid out, it’s time to compare the two. Ideally, your income should comfortably cover your expenses, leaving some wiggle room for savings or unexpected costs. If your income falls short, don’t panic! You might need to make some adjustments.

Start with your discretionary expenses since those are usually easier to tweak. Maybe you could plan fewer holidays, dine out less often, or look for more budget-friendly entertainment options. If you’re still finding it tough to balance your budget, consider reviewing your essential expenses. Downsizing your home or switching to a more affordable insurance plan could free up some much-needed funds.

4. Consider inflation and rising costs

Remember that the cost of living tends to rise over time due to inflation. What works for your budget today may not hold up in five or ten years. To prepare for this, build a buffer into your budget by overestimating your future expenses. This will help ensure you can still cover your costs as prices increase.

You might also want to adjust your investments to protect against inflation. Some retirees keep part of their savings in shares or other growth assets to help maintain their purchasing power over time.

5. Plan for emergencies and unexpected expenses

No matter how well you plan, life is full of surprises! Unexpected expenses will pop up, so it’s vital to have an emergency fund in place. This can cover costs like medical bills, home repairs, or car breakdowns. A good rule of thumb is to keep three to six months’ worth of living expenses in a savings account that’s easy to access.

6. Review and adjust your budget regularly

A retirement budget isn’t a set-it-and-forget-it kind of deal. It’s a living document that you should review and adjust regularly. Life changes—like new health needs, fluctuating investment returns, or changes in government benefits—may require you to revisit your budget and make updates.

By keeping an eye on your income and expenses, you’ll ensure you’re staying on track and making the most of your retirement savings.

Happy planning!