Don’t Just Budget for Retirement, Budget for Fun 

June 18, 2024

Summer in the Bluegrass state is fast approaching, but the fun and festivities associated with this warmer weather have been in full force for several weeks now. Being a Louisville native, the Kentucky Derby has always been my unofficial kickoff to summer. And with all the festivities surrounding the Derby – the grand fireworks display “Thunder Over Louisville”, the Pegasus parade, the chow wagon, Dawn at the Downs and countless others – I am reminded that leisure time is what most of us value above all else. The opportunity to go out with friends and family and enjoy time together, this is what we work so hard for during our working lives. However, I am also reminded that many of us neglect to factor this important part of life into our budgets and financial plans. It’s important to ensure you’re budgeting for leisure both before and during your retirement.  

For those in the accumulation phase of planning, a good rule of thumb is that your entertainment expenses should be roughly 5-10% of income. Building this item into your budget can help you plan to reach your savings goals while still making the most of your discretionary income. With summer right around the corner, you’ll be happy you incorporated leisure as a line item in your budget when it comes time to take that vacation.

Working leisure into your retirement planning is also important. Retirees planning for an active retirement should probably budget for an increase in entertainment spending versus during their working years. During those “go-go” years, while health is sound and the allure of retirement is fresh, many retirees are planning more trips, eating out, and spending more discretionary income on entertainment and travel than they did during those wealth accumulation years. In his piece, “Exploring the Retirement Consumption Puzzle”, David Blanchett coined the term “retirement spending smile” effect – essentially stating that for most, spending in retirement is a reverse bell curve or “smile”. With this “smile”, spending is at a peak during the years of travel and sound health, followed by a period of reduced discretionary spending as retirees settle into their retirement lifestyle. Lastly, the opposite peak shows increased spending on healthcare costs as the retiree ages. 

So, whether in the accumulation phase of your investment life or as a soon-to-be retiree operating within the confines of a fixed income, be sure to budget for your summer fun, because there’s plenty of fun to be had. 

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