When you retire, your next job isn’t to cut spending, it’s to understand what’s coming in.
Unlike your working years when you knew exactly what was going into your bank account, retirement can involve multiple streams of income from a variety of sources that can change every month.
These could include your defined benefit pension from work, government benefits like Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).
You also have to account for income from personal pension savings from your Registered Retirement Income Fund (your converted Registered Retirement Savings Plan), Life Income Fund (your converted Locked-in Retirement Account) and Tax Free Savings Account. There’s also investment income outside registered accounts to factor in, and sometimes part-time work.
When you add up your multiple-sources income, you can then craft a budget that works for you.
The biggest mistake new retirees can make — my own mom almost made it until we talked about budgeting — is to start slashing expenses out of fear.
Without understanding your true income, you may unnecessarily cut things that bring you joy and can make retirement feel like deprivation instead of freedom.
Here’s a three-step retirement-friendly budgeting plan to help you thrive in your golden years.
Identify every income stream; it’s your ‘retirement paycheque’
List every source of income, along with the exact dates you receive them and the amount from each source.
A simple budget spreadsheet will do the trick for tracking, and you can create this on Google, or download a template to your computer or phone.
The spreadsheet will tally up your income sources, so you know exactly how much you have coming in each month.
Two or three times a year, review your direct deposits, and call your investment manager or pension manager to confirm upcoming deposit amounts.
Many of these sources are indexed to inflation and will change in value, and rules around RRIF withdrawals can change with the political winds.
And government benefits also change, so it’s a good idea to register to access your My Service Canada account to stay on top of personal numbers, or call Service Canada for more information. And be sure to review your budget spreadsheet monthly as things will change.
Give every dollar a job, or it will vanish
Next, put every dollar to work using that same spreadsheet.
Groceries, utilities, insurance premiums, rent, mortgage, debt payments, interest charges and out-of-pocket health-care costs all need to be covered before discretionary items like travel or hobbies.
Adding regular savings — even in retirement — is helpful in building a cash cushion in case of an emergency.
Those savings can also be great to have at the ready for the good stuff — dream trips, grandkid gifts — or even throwing into an investment vehicle that matches you risk profile.
Getting into the saving habit also builds confidence in you money management skills and reduces your financial stress levels.
I recommend breaking down costs into quarterly or semi-annual line items by month and putting aside the money in short-term savings in the months when you’re not paying that bill. This so-called sinking fund’ is handy to have around when that semi-annual tax bill or annual gym membership renewal comes due.
These days, many retirees are adding a new line expense to their spreadsheet — helping their adult kids financially. If this is something you’re doing, add it to your spreadsheet.
Budgeting for this will confirm if you can afford to help, and by how much.
Spend on what you love — and keep things simple
Total income minus total costs is what you have left over. If the value is negative, your spending is too high.
But how do I cut back on my spending, you ask.
Prioritize.
Ask yourself, what do I want next week or next month to look like?
Maybe that’s visiting family, golfing or joining community activities. Put a price tag on those activities, and then check if your current bank balance can support them. If not, adjust.
Retirement is too precious to waste money on things that don’t matter. If you love gardening, invest in quality tools. If you love fitness, pay for the gym that motivates you. But ruthlessly cut out spending that brings little happiness. It’s simply not worth it.
Successful retirement budgeting comes down to awareness, behaviour and clarity.
Start with your income streams, give every dollar a job, and spend on what matters most.
And keep things simple. The more complex the spreadsheet or the app, the harder it will be to stay on top of things.
It’ll also take attention away from your top priority — enjoying your newly found freedom.
