The concept of having a budget at any age gives some individuals cold chills and others relief. Some people love the rigidity or certainty of a budget while others feel trapped or constrained at the thought of a budget. Those are two vastly opposing emotional extremes, especially as we progress toward retirement.

Retirement budgets — like them or hate them — are necessary for two key reasons. They address how much you need in order to maintain your standard of living and thus inform us of how much you need to have accumulated before retirement. They describe for you and your financial planner the income required to maintain life — fixed expenses — and the amount necessary for social expenses, or what we call fun expenditures.

The days of old where money could simply go into a bank account and you could live off the interest have left the realm of possibility. Savings between the 1950s and 1980s were considered to be extra and people retired on social security and pensions. Today, $500,000 to $1,000,000 401(k) accounts are normal.

During the high inflation-high interest rate decade of the 1980s, $100,000 could generate a guaranteed income stream of more than $10,000 a year in income in some years. Today, that number is less than $3,000. The shift has forced retiring investors to become more sophisticated in their investment strategies.

Leaving the work force and living off what you have accumulated has challenges. Several of the challenges are unexpected, especially if you are younger. A retiree may have invested and accumulated assets for 40-plus years and now they begin to distribute, or what some call decumulation. The habits and beliefs that create successful savings strategies are contrary to those that allow for the efficient distribution of income.

The tax implications of how investments are treated can be confusing but clearly matter in your budget. Personally, I have never witnessed anything like unexpected and misunderstood taxation to separate people from their retirement.

Creating the retirement budget dictates that you know how much income you will need monthly or annually. That amount will give insight into your investment strategies and address the expected percentage lost to taxation every year.

The “moose on the table” (a phrase borrowed from the ex-CEO of Eli Lilly, Randy Tobias) is the issue that many individuals emotionally struggle to take money from their accounts. They worked so diligently to build it for years. Statement after statement for year after year they have pored over data searching for ways to build the account. Pulling money out is akin to harming one of their children!

The financial world is more complex and the requirements for a successful retirement have never been so daunting. You can do 99 things right out of 100 and assume everything is just as it was meant to be. But that one thing you missed could mean the difference between a successful retirement for you, your surviving spouse or your charities. Plan accordingly.

Joseph “Big Joe” Clark, whose column is published Sundays, is a certified financial planner. He can be reached at or 765-640-1524.

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