Budgeting for Your Life in Retirement

How to plan a budget for life in retirement that will make your nest egg last

If you thought saving money for retirement was a challenge, figuring out how to spend it may be tougher still. You don't want to scrimp unnecessarily, but you also don't want to squander your hard-earned, hard-saved cash. Here's how to approach the challenge:

Create a budget. Before you retire, you'll need to develop a monthly retirement-spending plan. First, estimate your future expenses. Start with fixed costs like housing, food and utilities; then add expenses that are quarterly or annual. Don't forget to include money for entertainment. If your budget is too strict, you'll be more likely to abandon it.

Next, factor in the income you anticipate from all sources, including your pension, RRSP and interest payments from investments. Set a budget that you believe will meet your expected expenses and allow your money to last at least two decades in retirement.

Be conservative. When it's time to draw down your retirement savings, experts generally recommend a withdrawal rate of 4% of your total personal savings in the first year of retirement, with the dollar amount adjusted in subsequent years to account for inflation.

Test the waters. Try a test run for a few months to determine that you can, in fact, live on your projected retirement budget. If you can't, you'll need to either decrease your spending or increase the size of your nest egg. Working part-time during retirement can relieve pressure on your savings by reducing the amount you need to withdraw month to month.