When most people think about financial planning, they think about the steps leading up to retirement and having enough savings to finally get a break. The reality is that financial planning is a process that continues well into retirement. Without a steady paycheck coming in every couple of weeks, you should have a plan on how to effectively manage your money. Managing your money in retirement means accounting for the extra time you have on your hands and any pending trips you want to check off your bucket list. Retirement is a time when you have to be more diligent with your money so read on for tips on how to lessen the stress of managing your money in your golden years.

Estimate How Much Income You’ll Need

Before you dive into figuring out effective money management skills and behaviors, you have to first determine how much money you’re going to need to get you through retirement. Although this question may seem a bit daunting, it is completely necessary to think about. If you’re looking for the right answer, the truth is that there probably isn’t one because there is no one formula that caters to everyone’s financial situation. Even though there is no set number that you should aim for, financial experts often suggest that 70 to 80% of your pre-retirement budget should put you in good shape. For example, if before retirement you earn $100,000 annually, anything between $70,000 to $80,000 a year is a solid starting point.

Understand Where Your Money is Coming From

Although you will stop receiving a paycheck every so often, that doesn’t always have to mean that there won’t be money you can look forward to in retirement. You worked hard to finally get to this point in life so it’s only fair that you get to enjoy your well-deserved earnings. But where exactly is this money coming from? Well, when it comes to income during retirement, the most basic guarantee of income are your Social Security benefits. To make the most of these benefits, be sure to start cashing in on those savings later on in retirement. Financial experts say that every year you add to your retirement age before claiming Social Security, your monthly check increases by 8%. Additionally, as you make plans to withdraw from your 401(k), we recommend looking into purchasing an immediate annuity that will automatically start paying monthly income from the moment you buy it and so on. Lastly, other sources of income in your retirement are any part-time jobs or side hustles you have that can help you stay away from your Social Security and 401(k) funds in turn making them last longer.

Account for Health Care Costs and New Expenses

When you retire, most of your everyday expenses such as rent and perhaps transportation will remain the same but you also need to account for new expenses such as health care costs. As an employee and depending on your employer, a company may help you with healthcare costs like premiums which will no longer be available when you retire. When you retire is completely up to you and when you are able to but depending on when that time comes, it can affect whether you pay for some or all of your healthcare expenses. At this point, in life, medical spending is at an all-time high and although you may also have Medicare, it can cover most of your expenses but you should still account for other out-of-pocket expenses such as deductibles. Consequently, your retirement budget should include these new expenses. One piece of advice you might find helpful is to speak to your doctor and they can give you insights as to how medical expenses can change for patients as they get older.

In addition to healthcare, a new expense you may not have thought about is your taxes. Once you retire, your income will decrease so as a result you will pay lower taxes but it’s important to remember that your Social Security benefits are taxable and your retirement plan may also be subject to income tax.

Think About Necessary Expenses

This next tip goes hand in hand with knowing how much income you’ll have each month. As you retire, you want to take note of your monthly expenses and how much is necessary to spend each month. To get a better understanding of your expenses month-to-month, look over your bills to identify where you are spending your money and then sort through them and label them as either essential or nonessential. Your essential expenses are costs such as household bills, mortgage, or rent. On the other hand, nonessential expenses are not vital to get by in life like going out to eat or monthly subscriptions. It’s important to take note of your monthly expenses to ensure that you sort out the minimum you need and in case you ever fall into financial hardships, then you can look at your nonessential costs and make adjustments.

Budget for Discretionary Items

With all this information about prioritizing paying for necessary bills and how to effectively manage your money, it can be easy to forget the fun side of money management. When you retire, it’s helpful to plan out the sort of lifestyle you want to have when your day-to-day schedule opens up. What do you hope to do with your time off? Travel? Pick up a new hobby? These discretionary items should also be accounted for in your retirement budget. Once you have already figured out how much goes towards paying off your necessities each month, how you spend what you have left over is completely up to you. Discretionary spending is flexible but if you want to have a bit more structure then you can set a limit for yourself in your budget in case you want a cushion for any unforeseen expenses.

Like with a few things in life, budget is a process of trial and error. When you have given some time and thought towards your retirement budget, it’s important to test it out to see if it fits your lifestyle. If not, it’s just a matter of making adjustments until you get the right fit. You have worked hard to finally give yourself a break so don’t sweat it if you don’t have it figured out from the beginning. Now is your time to enjoy and with the help of a little financial planning, you’ll be on the right track to focus on yourself.

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