budgeting retirement journey

Your retirement journey is likely to be as quirky and individual as you are. But whilst most of us love fun and adventure, volatile cash flow is not the type of adventure we would embrace. Predictable income becomes even more important in retirement when you can’t make up shortfalls by working harder or earning more.

Today we consider the ways to successfully budget for your entire retirement journey which, for many Australians could be a 20-30 year life stage.

Just as you change, so do your needs

If you were to chart your expenditure over the next 20 or more years, you would see some peaks, some troughs and some periods when your expenses seem to flatline. Most retirees are typically more active in the earlier years. Some financial advisers suggest a ‘U’ shaped expenditure curve with costs higher earlier, lower in the middle and then higher again in the later years. Others talk of four or five phases of retirement, based upon different stages of need and activity. But there are no guarantees here. You may defy the odds and be an Iris Apfel or George Burns, still very active as you approach your 100th birthday, but generally speaking it’s fair to plan to spend more when you first leave work.

How to project variations in spending?

You may have heard of the so-called ‘4% rule of retirement spending’ developed by a US-based financial planner named William Bengen. The theory is that those retirees who withdraw a steady 4% of their portfolio (balanced), and adjust for inflation, will find that they spend just enough to avoid outliving their savings. 


This suggests a steady expenditure trajectory which most retirees do not actually experience. Some retirees with higher savings won’t need this much (4% per annum). Others with reduced means may need more. Other factors, such as the need for lump sum withdrawals for major items such as health bills, cars or paying down a mortgage don’t really fit this model either. 

One useful way to take into account the different retirement life phases is to set an initial spending plan and review it every year, against performance, adjusting as you go. 

Your source of income will also change

Across the years of retirement, the way we pay ourselves can vary quite a lot:

  • Many people will leave full-time work and support themselves from their savings. This may last their entire retirement or, as they spend down savings, they may go onto the Age Pension. 
  • Others may start their retirement with a part-Age Pension and move to a full one at a later date. 
  • Some start on a full Age Pension. 
  • Still others may sell assets and add funds to their superannuation in order to bolster their retirement income streams. 
  • Downsizing may play a part as well, as do inheritances which are not always expected. 

That’s life, as they say in the classics. But these things are not impossible to predict. Based upon your financial situation at age 55 you can fairly accurately project your likely retirement income. Things may change in terms of your earning capacity, health and family situation, but you can adjust your planning to accommodate these changes, allowing yourself to see the likely sources of income you will access at certain times in the coming years. Remember also that the Age Pension is a government-guaranteed secure safety net which supports millions of Australians every day.

You can set yourself up for success… 
…by knowing this/these things beforehand 

There are many ways to maximise your starting retirement income and your ongoing income. The fundamental things you need to understand are your current:

  • income
  • household expenditure and 
  • likely debt repayments.

These three factors will form the basis of a family budget. It may seem to be stating the obvious, but not everyone is fully aware of their ongoing income, their full outgoings and/or how any debt repayments may be reducing their savings. When you have established your probable retirement income levels you can consider two ways of further managing money by maximising your entitlements or by more effectively managing your superannuation

Best practice budgeting

As we’re covered above, there will be ups and downs in your retirement spending. While no one has a crystal ball, it is possible to budget for most contingencies. But why not try a two-step approach that allows you to recognise the expected expenses and to plan for others.

Most households need funds to cover costs associated with housing, food, health, transport, utilities, household goods and travel and entertainment. Why not download your most recent three months outgoings’ and categorise into essential costs and into discretionary costs or treats? Plot these into a twelve-month plan (I use Excel graphs as they are easy to create and read). Then add in a chart with two lines for each months expenditure. These two lines will represent essential, recurring bills and treats. You can then adjust the discretionary amounts if the essentials spike. Or the converse – plan a treat if essentials decrease. You can also see a problem in advance and adjust accordingly.

Budgeting is much easier in a time of electronic banking. Yes, it can be a pain to set up accounts, passwords and reports. But once you download your bank’s App and categorise spending by merchant, you have informative records whenever you want. If it all sounds too hard, don’t despair, grab a grandchild (or borrow someone else’s) and ask them to help you. They are often soooo much more patient than adult children!

And one more thing. People will tell you to shop around and maybe you already do. While writing this article I ran a test search of the price of a 250 gram block of a well-known brand of parmesan cheese. The price varied from $10.45 to 11.50, to $13.91. The saving of nearly $3.50 on this one grocery item is staggering. To paraphrase an old advertisement, let your fingers do the work – Google prices before you shop and let the answers guide where you shop. 

For those wanting assistance to create a basic budget, the government’s Moneysmart calculator provides a handy start.

Future needs

We’ve mentioned that later life needs may involve specialist health care, accessibility requirements and aged care home services or accommodation. The funding of aged care is under review and it’s possible some aspects of this care will change to a consumer-pays model. This will be decided by government in due course, but it’s worth keeping up-to-date on likely costs before you need these services. There are also emergency bills none of us can predict and at some stage we all need to pay off debt. Those on an Age Pension can seek advance payments should they need emergency funds for a shortfall, but these funds do need to be repaid.

The good news?

If you take the management of your finances seriously and do realistic projections, you are unlikely to be caught too far short, as you will have given yourself time to respond in the most effective way. Most of us actually have more leeway than we think. But if you do not feel that your funds are sufficient to cover your retirement, it may be helpful to talk to someone who knows all the options. To share your concerns and bounce off ideas and options, to help you wrangle your finances back into shape and sleep a little more easily. Here are three consultations that may assist:

Retirement Forecasting (Compare two scenarios of how your assets and income will look during your retirement journey).
Understanding more about super (Assess the options to help make your super work better for you).
Maximising your entitlements (Assess any changes you might be able to make to maximise your Centrelink entitlements)