Cypress Wealth Services
November 2020
They don’t call them the golden years for nothing: traveling, taking up new hobbies, more time with family—what could be better? But rather than eagerly anticipating retirement, almost half of all Americans worry about running out of money during this next stage of life. (*1) Even if you’re not one of these anxious Americans, you likely feel the need to be fiscally responsible in retirement in order to avoid problems down the road.
Step one is creating a budget. Yes, a budget is essential if you want to stay on top of your finances in retirement; in fact, it’s the foundation of personal financial management. Here are three budgeting tips to help boost your confidence and peace of mind as you enter (and enjoy!) retirement.
As you build your budget, organize it based on needs. Every single expense should be identified as either fixed or variable and essential or non-essential. For example, your housing expenses are likely fixed and essential. Food is essential, but it is a variable expense. A gym or country club membership may be fixed, but it is non-essential. Other forms of leisure or travel are likely variable and non-essential.
Knowing which expenses are necessary and which are flexible can give you incredible peace of mind. If you’re used to spending $8,000 a month, once you sort your expenses and discover that only $4,500 of them are truly necessary, it relieves a lot of pressure.
It also allows you to make wiser financial decisions and adjust better to market conditions. If we enter a bear market and your portfolio is down, you can cut spending back to cover the necessary expenses you identified. Maybe you put off that big trip or eat out less. This can potentially keep more of your money invested so you can be better positioned if and when the market bounces back.
Unless all of your money is in an after-tax account or Roth IRA, you will have to deal with taxes in retirement. Having your mortgage paid off before retirement is a common—and excellent—goal. However, don’t make the false assumption that no mortgage equals no payments.
Part of your monthly mortgage payment may be going toward property taxes and homeowners insurance if you escrow. Don’t forget that you still have to pay these bills when your home is fully paid off, and it’s important that these figures be included in your budget. Keep in mind, these numbers will be inflating over time as well. One way to handle property taxes and homeowners insurance in retirement is to set aside money on a monthly basis, just like you did with your mortgage, so that you have the funds when those bills are due.
Property taxes won’t be the only taxes you will owe in retirement. Distributions from 401(k)s and IRA accounts will most likely be considered taxable income. Even your Social Security benefits may be taxable, depending on your overall income. It’s critical that you are withholding and paying the proper taxes so that you don’t get into a large tax bill situation. A competent tax preparer can help you with this issue.
Aside from tax preparers, working with a competent financial planner in retirement can make the difference between a retirement marked by fear and stress (like the 49% of Americans mentioned previously) and one of confidence.
The closer you get to retirement, the more you’ll find investment advisors who want to work with you and manage your money for you. Yes, it’s wise to have a professional help you with your investments, but you need a financial professional to also help manage your entire financial life—not just your money.
We at Cypress Wealth Services will help you develop a comprehensive financial plan that includes your short-term and long-term goals, a sustainable budget, and a general road map to help you navigate retirement—all while taking into account your values, personality, and circumstances. To learn more about what it’s like to work with a professional who cares more about your life than your investments, contact one of our offices today to set up a no-obligation conversation.
Cypress Wealth Services is an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. Cypress Wealth Services comprises professionals with diverse backgrounds and extensive experience and qualifications. Cypress Wealth Services is uniquely qualified to serve a broad range of client needs, and their experience and expertise act as a foundation for their client service process. The firm uses The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With offices in Palm Desert, CA, Tustin, CA, and Anchorage, AK, the firm serves clients across the country in Wealth Management Services, Fiduciary Services, 401(k) Design and Management, Investment Reporting Services, Financial and Retirement Planning, and more. For more information, visit www.CypressWS.com or call 760.834.7250.
