BlackRock CEO Larry Fink Says Retirement Isn't Just a Saving Challenge: It's a Spending One Too. 3 Ways to Budget After Retirement

Larry Fink recently posted his annual letter to shareholders. He’s the CEO of Blackrock, one of the world’s largest and most consequential companies. In it, he spoke about retirement.

One part that stood out to me was Fink’s acknowledgment that retirement isn’t just a saving challenge for many, but a spending one, too. It struck me that spending, the other variable of the most basic rule in personal finance (income minus expenses = what you keep), doesn’t get enough attention.

How do you know how much you can spend in retirement? You don’t know how long you’ll live or what the world will be like five, 10, or 20 years from now.

Here are three tips for entering retirement with your eyes open to your spending habits.

1. Pay attention to your expenses

It’s easy to put money on autopilot these days. Virtually every company accepts and encourages autopay, and it’s simple to link up bills to bank accounts and credit cards and let the money leave your account without a second thought.

Building systems with your money can be a good thing. However, it’s crucial to grasp how much you spend. You need to know where the waste is, and we all have waste. It could be that subscription you don’t use, or that second car you don’t drive. The first step to figuring out your financial future is to know where you stand today.

Go through your financial transactions and list each expense. Determine whether it’s recurring or just a one-time purchase. Then, you can sort them into three categories: Needs, wants, and debt. You’ll then have a clearer picture of your finances, what you truly need to live, and what’s holding you back.

Consider automating payment on your needs, scrutinizing your wants, and eliminating high-interest debt from your finances.

2. Understand how much money you’ll need

Now that you know where every dollar you earn goes, you can build expectations of what you’ll spend in retirement. Most people have habits and hobbies they’ve done for many years. Your retirement will likely look like your weekends do now, and that can be sneakily expensive.

According to estimates from financial experts, most retirees spend between 55% and 80% of their annual working salary. That’s $55,000 to $80,000 for a person making $100,000.

The 4% rule is a basic guide that states you can withdraw 4% of your nest egg in year one of retirement, adjust that number for inflation, and repeat annually. Doing so should stretch your nest egg for at least 30 years.

Think of it like this: Your goal is to make your living expenses about 4% of your expected nest egg at retirement. Depending on your situation, you may have the luxury of maintaining a particular lifestyle or need to cut some expenses out of necessity.

3. Don’t forget your taxes

Unfortunately, taxes might be among your most significant expenses in retirement, depending on where your nest egg is parked. Retirement plans like a 401(k) or a traditional IRA are tax-deferred, meaning you didn’t pay taxes on your contribution and may be obligated to pay tax on your withdrawals in retirement. An accountant can help you determine which tax bracket you’ll fall into.

Seek help from a professional if needed, but you must know the tax implications when you draw on retirement savings. You don’t want to carefully craft a budget only to get a surprise bill from the IRS that turns everything upside down.

Retiring means you must be more aware of where your money goes, perhaps more so than at any point in your life. If you stay on top of things, plan accordingly, and keep your taxes in check, retirement is bound to be the joy everyone dreams of.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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