How to Manage Money in Retirement

When you retire, a lot of things change – not just your employment status.

You have a new schedule, a new role, and a new sense of retirement purpose…

And then there’s your new budget with different expenses.

Which also means a different source of income.

Instead of your regular employer paychecks, you may receive payments from Social Security or retirement accounts.

To help you manage this big transition and prepare for your financial shift, we share three top tips to proactively manage your money in retirement.

#1 Start Your Retirement Financial Planning ASAP

It goes without saying the sooner you contribute to your retirement funds, the more comfortable your financial retirement planning process will be, and of course, the less likely you‘ll worry about money after retiring.

Sadly, though, saving enough for retirement isn’t quite the norm. A whopping 48% of workers believe their salaries are too low to sufficiently save for retirement, and another 22% have less than $5,000 saved for retirement.

That’s the story in the US, anyway.

That’s not to say if you’re employed among the 52% of employers offering a 401(k) plan, socking away a portion of your monthly earnings requires a ton of extra planning.

It doesn’t. In fact, you can set it up to be on autopilot.

Retirement programs like 401(k)s can deduct funds automatically from your salary. Without even having to think about how the paycheck deductions impact your budget, your retirement contributions are turned into a standard monthly bill like your Netflix subscription.

It’s no wonder automatic enrollment adoption has dramatically risen among employee-elective contributions over the last 15+ years.

And if your employer has a matching contribution plan – which, 98% of companies that offer a 401(k) plan offer some sort of matching program – that makes the process of saving for retirement and contributing to your retirement accounts even more attractive.

Even if you don’t get a headstart on your contributions, it’s not too little too late. If you’re over age 50, you can make annual catch-up contributions (up to $7,500 in 2023) through plans like:

401(k)
403(b)
SARSEP
Governmental 457(b)

And even if you don’t have a 401(k) through an employer, you can still open your own Individual Retirement Account (IRA) and set up recurring automatic payments from your bank accounts into individual retirement accounts.

Among the benefits of opening an IRA you can enjoy:

Potential tax-deferred or tax-free growth
Potential access to more investment choices beyond what an employer plan offers

It’s worth noting the differences between the four main IRA types:

Traditional IRA – tax-deferred growth where your contributions are tax-deductible
Roth IRA – tax-free distribution where you contribute using after-tax dollars and don’t pay taxes on your investment gains
SEP IRA – self-employed IRA with the same rules as traditional IRA withdrawals
SIMPLE IRA – similar to SEP IRA, but employees are allowed to make contributions to their accounts, and the employer is required to also contribute

And in the case of opening your own IRA, since you’re the one who manages your IRA and not your employer, you get to decide when and how much money is deducted from your account to make a contribution.

Remember, you can contribute up to $6,500 annually if you’re under 50 and $7,500 if you’re above 50 for those catch-up contributions.

You also get to choose between hiring an online broker or a robo-advisor to manage your IRA investments.

Regardless of who’s managing your portfolio, though, be sure to align your investments with your risk tolerance – which brings us to our next tip.

#2 Match Your Investment Plan With Your Risk Tolerance

Making sure your investment plan is successfully working for you during retirement is likely the key to your peace of mind – financially, anyway.

This includes choosing an investment strategy that’s not only stable enough to bring you solid returns but also one that takes inflation risk into account. (In case you’re curious about inflation’s impact, check out an inflation calculator.)

And just like your lifestyle preferences, portfolio risk preferences vary from person to person.

Age plays a role in your investment risk levels, too. For instance, a 65 or 75-year-old will likely have totally different investment risk tolerances compared to a 25-year-old’s. The maturity date has a lot to do with how much volatility (aka highs and lows) your investments can handle.

Plus, there’s the emotional side of investing.

If you’re a set-it-and-forget-it type who doesn’t feel the urge to compulsively check on your returns, then maybe you can bear more risk – or not. At the same time, others might get emotionally involved by tuning into the highs and lows of the market.

As you can see, there’s a lot to consider, and selecting the right portfolio mix is unique to the individual.

Which makes evaluating your risk tolerance and risk appetite a super important step in selecting the proper assets for your investment portfolio:

Risk tolerance is the amount of market volatility and loss that you’re willing to bear as an investor.
Risk appetite is the amount of price movement you’re willing to tolerate in your portfolio.

As for the types of investments and their risk, generally speaking, compared to bonds, stocks and equities are riskier types of investing. Investors typically establish a portfolio allocation to separate their investments into riskier (stocks) and safer (fixed-income securities) categories.

Mutual funds provide many benefits, including the ability to diversify your portfolio and invest in a changing list of securities chosen and actively managed by your investment manager.

The investment objective is to beat the investment returns of a related benchmark index (like the S&P 500). Mutual funds are popular among retirement portfolios since you can purchase mutual funds that invest in stocks, bonds, a mix of the two, or a wide range of other assets.

Index funds are another popular option with a passive management style – the investment mix is automated with the goal of matching the exact holdings of a benchmark index.

Unlike mutual funds, the investment objective is to match (and not beat) a benchmark index, which makes the average expense ratio less (around 0.02% to 0.2%) than that of mutual funds (0.5% to 1%).

Also, it’s worth noting that periodically reassessing your asset allocation can also be helpful in providing returns.

As for how often to rebalance, according to a study of more than 22 million DC plan participants, less than 15% changed the asset allocation of their account balances, and less than 10% changed their contribution investment mix.

In a nutshell:

Choose the investment strategy that suits your personal preferences and needs. And, of course, work with an investment pro that will tailor your portfolio to meet your risk preferences and needs.

#3 Lock in Your Retirement Budget

Given the change in your retirement income and expenses, it’s worth finetuning your budget.

First, calculate your usual expenses, by doing a mental walkthrough of your daily, weekly, monthly, and annual bills to come up with a monthly and annual average.

By the way, if you’re a pre-retiree wondering if you generally have enough to retire, try calculating your 25x Retirement Rule by multiplying yoru annual expenses by 25. The calculation gives you a rough estimate of 30 years worth of expenses.

And in case you’re curious, according to a recent US Bureau of Labor Statistics study, the average monthly expenses for adults aged 55-64 is $5,880 and drops to $4,345 per month for those over age 65.

Then do the same monthly and annual figures for your retirement income. The average retirement income among Americans aged 65 and over is $75,254 annually or close to $6,271 per month.

For ease of calculating the budget, you can always use a budget calculator.

After accounting for all your retirement income and subtracting the expenses, if you’ve got some extra cash left over, congrats.

If you fall into such a surplus, it’s worth reserving the money for specific areas of your life. For instance, the six accounts retirement budget nicely separates your money into these important expense buckets:

Lifestyle Account – 55% of your budget
Fun Account – 10% of your budget
Short-Term Savings Account – 10% of your budget
Emergency Fund Account – 10% of your budget
Giving Back Account – 5% of your budget
Education Account – 10% of your budget

This is a great way to balance your expenses across both necessary and fulfilling life expense categories.

On the other hand, if your retirement income doesn’t cover your immediate needs, there are satisfying ways to make ends meet, like with a paid volunteer gig, side hustle, or passion project (more on that in a bit).

Regardless of how you pull in the extra income, try to first find clarity on your newfound retirement interests and passions – it’s hugely important to embrace that it’s your time to shine in a totally new way.

And if you’re finding yourself strapped for cash and really in a pinch, there are other options, like applying for a loan for seniors, which you can do even if you already receive Social Security payments or have other sources of retirement income.

While the interest rates of such loans are higher than traditional bank loans, you can apply conveniently online from home. Plus, if you’re already receiving Social Security, it’s considered income, which improves your chances for loan approval.

Loans aside, though, when you nail down your retirement budget, you’ll have peace of mind and a financial perspective for achieving your ideal retirement life. You’ll know exactly where to pinpoint where the money comes from and where you want it to go.

For those wanting more tips on stretching your retirement income, read on.

5 Top Ways to Make Your Money Last in Retirement

Aside from managing your new budget alongside your new way of life, there’s a total mental shift that happens in retirement – going from saving income for decades to only spending it can seem like a foreign practice.

For some, these shifts (coupled with the big identity and purpose shift) might even contribute to a bit of retirement anxiety.

Not to worry, though. There are ways to soothe any money worries by tapping into different ways of stretching your dollars in retirement.

Here are some basic considerations to help you avoid outliving your money in retirement.

#1 Delay Drawing Social Security (and Consider Couples Options)

When you put off taking Social Security, you immediately save more money. For instance, if you were born in 1943 or later, your Social Security payments will increase by 8% until you turn 70 for each year, you wait to begin receiving benefits after you reach retirement age.

Basically, the longer you wait, the more you benefit from Social Security.

For your convenience, you can use the retirement calculator to calculate how much money you can receive by postponing the receipt of your Social Security benefits.

And if you’re married, the best way to boost your Social Security payments is for the higher earner to stop making payments and postpone claiming benefits longer.

The spouse who makes less money is eligible to get the spousal benefit. This strategy for married couples offers advantages as well as continuing to provide extra savings.

#2 Consider a Paid Passion Project

You can couple your retirement interests with earning income on the side.

If money were no object, how would you spend your time in retirement? Regardless of the size of your nest egg, it’s massively important to tap into your passions and sense of purpose in retirement.

Check out these retirement income-earning options to help inspire ways to align with your new retirement role, passions, and purpose:

Bottom line: Find something that’s not only less stressful and more enjoyable than your career role but also gives you the chance to learn new things. After all, lifelong learning is beneficial for both enhanced cognitive health and fulfilling retirement.

#3 Downsize Your Home

Selling a larger home and relocating to a smaller one, or even streamlining your living situation and moving to an active retirement community, can provide significant financial savings in retirement.

And perhaps more importantly, don’t underestimate the power of simplifying your life possessions.

Whether it’s selling a second car, selling your clothing and handbags, or simply paring down your belongings, decluttering your home comes with many benefits – like less cortisol and stress, more mental clarity, and better health, to name a few.

Decluttering aside, though, there’s a rising trend in downsizing among 45-64 year-olds. In 2017, over 10% of home buyers were downsizing, whereas, according to the Zillow Group Housing Trends report, the number grew to more than 45% of homeowners in that same age group.

It’s also worth noting that generally, there’s an increasing percentage of older adults who sell their homes and begin to rent, with 16.8% of adults aged over 80 renting – compared to only 2.44% of people in the 60-69 age bracket.

In a nutshell, take into account what you have, what you require, and what you can live without. And imagine it in your dream retirement life and location. Speaking of location, head to our next tip.

#4 Relocate to a Less Expensive Location

If you’re open to moving to a new place, you can potentially save thousands of dollars a year simply by relocating to another state or even another country. Which might be a nice option if you’re single with more flexibility or want to move closer to family.

Either way, moving can be another shiny new chapter in retirement – new acquaintances and connections and new places to explore during a life phase that can truly be all about self-discovery and exploration.

For those with more adventurous streaks, consider these best countries to retire. You may find some attractive countries that offer lower costs of living, solid healthcare coverage, plus scenic, quaint neighborhoods.

Regardless of whether or not you go abroad, scoping the cost of living is a must.

The Council for Community and Economic Research (C2ER) publishes its Cost of Living Index each quarter, measuring regional differences in the costs of consumer goods and services (minus taxes and non-consumer spending) for professional and managerial households in the top income quintile.

#5 Take Advantage of Discounts and Offers for Retirees

Many companies, shops, and businesses offer special discounts to older adults – from airline tickets, cruises, and excursions to tickets to exhibitions and museums. Retiree discounts also span across a wide range of products, including household goods, clothing, and accessories.

Not to mention some big brands – like Amazon Prime, CVS, and Home Depot – offer healthy discounts, too.

Check out TheSeniorList’s annual list of senior discounts, which organizes senior discounts into categories like:

Restaurants
Grocery stores
Retail stores
Travel
Prescriptions and medical alert systems
Cell phone plans

Take Care of Yourself (Financially and Beyond)

It’s up to you how you want to spend your retirement, both financially and time- and energy-wise.

To recap our tips:

#1 Start your retirement planning ASAP – contribute as much as you can to your retirement accounts while employed; if you’re over age 50, you can also make annual catch-up contributions to your retirement accounts
#2 Match your investment plan with your risk tolerance – like any financial decision, it’s best to match your investment plans with your individual risk preferences
#3 Lock in your retirement budget – by clearly outlining the inflows and outflows, there’s less chance for unpleasant surprises and you can pinpoint any areas that need attention

And five top ways to stretch your money in retirement are:

#1 Delay drawing Social Security (and consider couples of options) – if it makes sense, waiting to draw from Social Security can benefit your bottom line
#2 Pursue a paid passion project – whether it’s a paid volunteer gig or a side hustle, you can earn income and align with your retirement passions and purpose
#3 Downsize – reap the benefits of simplifying your cost of living and your possessions
#4 Relocate to a less expensive location – just be sure it’s a place that aligns with your ideal lifestyle and new role in retirement
#5 Take advantage of discount offers for retirees – trimming extra costs where possible may add up to a sum that’s more than worth the effort

May you follow your innate desires to live fully with purpose and passion. And have the financial security to support your ideal lifestyle.

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