Budget worksheet for accounting for retirement costs

Unexpected or onetime costs can bring major changes to the family budget. This will require careful planning to think through the needs of each family member as their lives change through time. Using a budget worksheet such as the one below, will make the process more reliable.

Large onetime purchases or special milestones will require significant additional expenses. It is important to project the timeframes and expense levels that these items will incur. Often times these expenses are 10 or more years in advance making it more difficult to project.

One such cost is schooling after high school. College expenses are difficult to estimate. It depends on which school is selected. Private or Public, instate or out of state, whether they will they be living at home or on their own.

As with most of the cost issues, there are many variables to factor in. It may be 8 to 10 years before your children will be college age. The assumption for the spreadsheet below is $12,000/year for each child. For the purposes of illustration, this expense is showing as starting in 2008. It is also assumed that parents will to pay for all education expenses.

Vacations are also very expensive. Air Travel, hotels, food, and entertainment can add up to the family spending $2,000 or more in very quickly. If the family drives and stays with relatives, expenses can be greatly reduced. Settling on less expensive alternatives is a good way to reduce income needs.

In the example below, the budget allows for two major trips a year and plans for less expensive activities sprinkled throughout the year. This is an area that can be difficult to contain. Family commitment, discipline, and understanding will be required.

As the children get older and develop other interests, this will become more and more complex. Right now sports like (Baseball and Basketball) and Ballet can take significant amounts of money and time. Equipment is very expensive. These expenses may seem optional, but they are an important part of family life.

There can also be music lessons as well as the desire to join a recreation center for exercise. There is also sporting events, movies, and other activities that add up fast. This figure should be padded as the unexpected will most certainly happen.

Another area is home improvements. The spouse may have a passion for decorating. Even though the family may have lived in their current home for several years, there may still be a lot of home improvements needed. These upgrades will definitely spill into retirement years. There needs to be agreement on how much should be spent.

To estimate the amount needed, list out the projects and a reasonable amount for each. In some cases it is good to spread this amount over time. In addition, there will inevitably be repairs and replacement items.

If you now have a company car, at retirement you will probably need to get a replacement vehicle. This is shown as budgeted over a 4 year span. There will be additional insurance for this new vehicle. Later, there will be insurance issues as younger children get ready to drive. Illness or injury is another unknown. Medical insurance usually pays a significant part. But deductables need to be factored in.

It is almost impossible to account for every expense. A contingency line item of 200 dollars per month is specified to cover this. Lastly, a 3% cost of living expense is calculated for each year from the previous years total. This is propagated through time.

This will increase in income requirements will put you in a less risky position. By projecting greater needs, there will most likely be a greater effort to generate the needed income.

The spreadsheet below is a mockup showing the additional expenses. The changes are marked in green. The intention is to paint a rather harsh picture. Then whatever plans are put into place will have a better chance to have retirement costs hurdled.

Retirement costs
Age/Years---------------------------------------->

(59) (60) (61) (62) ... Catagory

Catagory Month (2007) (2008) (2009) (2010) ... Totals

Contributions

Church 80 960 960 960 960 3,840

Other 20 240 240 240 240 960

Primary Property

Mortgage 800 9,600 9,600 9,600 9,600 38,400

Real estate taxes 300 3,600 3,600 3,600 3,600 14,400

HOA 70 840 840 840 840 3,360

Education 1000 12,000 12,000 12,000 12,000 48,000

Utilities

PG&E 150 1,800 1,800 1,800 1,800 7,200

Water/Sewer 100 1,200 1,200 1,200 1,200 4,800

Charter Cable 70 840 840 840 840 3,360

Garbage 20 240 240 240 240 960

Telephone 60 720 720 720 720 2,880

Cell phone 45 540 540 540 540 2,160

Alarm System 25 300 300 300 300 1,200

Gardener 60 720 720 720 720 2,880

Food 1000 12,000 12,000 12,000 12,000 48,000

School lunches 50 600 600 600 600 2,400

Clothing 200 2,400 2,400 2,400 2,400 9,600

Gas 180 2,160 2,160 2,160 2,160 8,640

Insurance

Fire Insurance 60 720 720 720 720 2,880

Earthquake 70 840 840 840 840 3,360

Auto 70 840 840 840 840 3,360

Rental Properties

Fire Insurance 100 1,200 1,200 1,200 1,200 4,800

HOA 130 1,560 1,560 1,560 1,560 6,240

Property Mgr 230 2,760 2,760 2,760 2,760 11,040

Property Taxes 380 4,560 4,560 4,560 4,560 18,240

Expense Subtotal 5,270 63,240 63,240 63,240 63,240 252,960

Vacations 240 2,880 2,880 2,880 2,880 11,520

Recreation 170 2,040 2,040 2,040 2,040 8,160

Home Improvements 400 4,800 4,800 4,800 4,800 99,200

Contingencies 200 2,400 2,400 2,400 2,400 9,600

3% Cost of living 2,261 2,956 3,486 8,703

Expense Subtotal 7,480 75,360 98,521 116,216 111,246 401,343

Planning for non-routine costs will be aided by using a budget worksheet.

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