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Practicing for Retirement: Your Budget
2006 February 10
© 2006, Libertiny Financial LLC
I recently had an interesting conversation with a gentleman regarding his experience during retirement. The conversation focused on the importance of budgeting and systematically investing for retirement. He suggested that prior to retirement, it would be great if our clients practiced living on their forecasted retirement budget. The benefits include removing the financial fear of retiring and also ensuring that you invest regularly, well in advance of retirement.
Top 4 Success Factors
Many factors are included in a financial plan. I believe the four that affect retirement success the most:
1) Maximize your pre-retirement investments through regular contributions.
2) Set and stick to your pre- and post-retirement budget.
3) Determine your acceptable risk/return ratio.
4) Active asset allocation.
Your Budget
We've made establishing a budget simple. Based on over a decade of data and analysis, I’ve developed a document that encompasses the majority of items required to establish a budget. Just complete the document every month for 3 months, send in your data to me, and we’ll project a logical budget for you.
Budgets don’t have to be painful. Most of our new clients initially forget to include retirement savings, vacations and monthly rewards for themselves within their budgets. If you’re married, I’m a big proponent of having three check writing accounts for monthly expenses:
Family
His
Hers
A Tip: The “Family” account is used to pay necessary expenses (mortgage, food, automobiles) The “His” and “Her” accounts allow each person to have an equal amount of money to spend as they see fit. You can save for an expensive item (the new HDTV) or spend more frequently on less expensive items (clothes,). It’s a guilt-free way of reducing a common source of family friction-spending habits.
Practice for Retirement
Once you know how much you spend, you can rank your spending categories in order of importance. Then, take the projected budget that I send to you and multiply it by your post-retirement spend rate of 80%, 100%, or 120%. Ex: $100K per year multiplied by 80%=$80K ($6.7K per month). Can you live on this amount ?
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