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How to build a retiree-friendly budget

by Ben Power | 30 Mar 2015

When you stop working, figuring out a new way to budget and take care of your savings can be tricky. Here’s how to get your head around it.

Retirement is financial crunch time for many and retirees either have to live within the constraints of a pension, or ensure their hard-earned savings last as long as possible.

“[Having a budget] is a critical thing,” says Broderick Knowles, financial planner at BFG Financial Services. “You need to identify where expenditures are, and not just immediate things.”

Knowing how much you spend through budgeting gives you greater control, not just over your spending, but over your retirement savings.

New challenges for retirees

Bentley Klein, principal of financial planners, Axios Financial Solutions, says retirement is getting tough because costs are going up. He says official inflation figures show costs rising annually by about 2.5 per cent, but the reality is different.

“The average cost of running a household – buying consumer items – has gone up dramatically,” he says. “It’s very, very difficult for a lot of people.”

Retirees face other challenges, including falling returns from investments. At the same time, people are living longer and facing higher aged-care costs. In this environment, budgeting becomes vital.

Why you need to build a budget

If you haven’t ever had a budget before, now is the time to start. Klein says that, ideally, you should get into the habit of budgeting in the years leading up to retirement.

Budgeting allows retirees to see the impact of a financial decision before they make one. It also allows you to see if you need to make lifestyle changes if you’re spending more than your retirement income.

However, budgeting is always a challenge for most people, Klein explains. “It’s the hardest thing to get people to do in retirement. People don’t like accountability; it’s seen as restrictive.”

How to get started

Joanna Ryan, financial expert at Lumix Wealth, breaks spending into four buckets when she works with retired clients:

  1. Money used for repairs and maintenance of cars, houses, etc;
  2. Holidays;
  3. Health (these are expenses not covered by health funds and the public system);
  4. Everyday spending.

Ryan says the client’s allocated pension and Centrelink pension fund the everyday spending.

“Everyday expenses are pretty well covered by aged pension and their allocated pension; that all goes into a bank account,” Ryan explains.

But the other expenses are separated in another account, which Ryan’s clients can access if they need.

Top five tips to save money

 

  1. Go through all your costs line by line and make sure you’re getting the best value from things like 2 insurance expenses.
  2. Pay off your credit card. You could be paying 18 per cent on your credit card debt, but earning three per cent on your cash savings. Better still, don’t use a credit card.
  3. Make sure you’re not paying for unwanted things. Do you really want and need pay television, for example?
  4. Do you need two cars? That’s a big saving cost as well. In retirement, couples often don’t need both cars, as they're not going to work anymore.
  5. Look for better plans for your mobile or landline and electricity.