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Budgeting Your Nest EGG

After saving your entire life, spending that money might feel a little uncomfortable. After all, you want to be sure you'll have enough to live comfortably for the rest of your life.

That's why making a budget is so important. This process is pretty much the same as making a budget during any other time in your life. You'll still have goals. They'll probably just be different. The other major difference is that your potential for increasing your income will be significantly lower if you truly plan to stop working.

Most financial experts estimate you'll need at least 75% of your pre-retirement income for retirement living expenses. This will vary depending on how much debt you have. When you start your budget. It's important to be honest with yourself. Start out with the goals that are important to you. If after you finish your budget, you find that these goals are not affordable, make adjustments accordingly. Don't cheat yourself out of the life you want before you know whether or not you can afford it. You may be surprised.

Step 1
Write down your retirement goals and their anticipated costs.

Step 2
Estimate your life expectancy. Obviously this will be a guess, but there are some average figures that could help. If you're a 65-year-old female, figure your life expectancy to be at least 85 years of age. A 65-year-old male should figure life expectancy to be at least 81 years. If you're in good health and you don't smoke, aim at least 5 years higher.

Step 3
Determine your net worth. Make a list of anything you own, including any accounts, stocks, bonds, or other sources of retirement income, as well as your home, car, and anything else of value. Be sure to take into account earned interest and investment earnings whenever possible.

Step 4
Subtract anything you owe, like household debt, mortgage and loan balances, credit card debt, medical bills, etc. Do not subtract monthly expenses yet – just total debt. This number gives you a good idea of what you have to spend for the rest of your life. Now, you can proceed with a monthly budget.

Step 5
Make a list of all your monthly expenses. Include items like insurance premiums, alimony, groceries, utilities, loans, health club memberships, gasoline, mortgage or rent payments, etc. Multiply this number by the number of months figured for your life expectancy. Based on your current monthly expenses, you will need at least this much money to live on during retirement. Is it higher or lower than the number in step 4% If it's higher, you will either need to cut expenses or find additional income. Or, you will have to adjust your retirement goals. If it's lower, compare it to your retirement goals to determine exactly what you can afford to do in your retirement years.