Retirement is a long-awaited and exciting moment. This is an opportunity to exhale, relax and be alone with yourself, your loved ones, and all those activities for which there was not enough time. However, with retirement, we can’t forget about everyday chores like utility bills, grocery shopping, and more. This means that managing money in retirement is as much a necessity as ever. Or maybe more important, since your income inevitably decreases and you don’t want to worry every month about whether there will be enough money for the next one.
You can manage even a small amount of money and live comfortably at the same time if you follow important rules. We have prepared tips for you on how to manage money in retirement.
Five Tips for Managing Your Finances in Retirement:
Retirement money management does not automatically mean saving, and saving does not mean a poor standard of living or poverty. With the right money management, you can live comfortably and afford more than those with a higher income but do not know how to properly allocate the budget. We have prepared for you some tips on how to manage your finances and not worsen the quality of your life.
#1. Remove Negative Financial Attitudes
There are many stereotypes in our heads that retirement entails many restrictions and that it is necessary to deny yourself everything, but this is not so.
Retirement is not the end of a phase. It is the beginning of a new one. However, the phrase: “If not now, then when” is most relevant in this period. You can do everything that you’ve been putting off for years. No matter what you dreamed about: a huge TV or a trip to Thailand. Even if you do not have the necessary funds here and now, there are loans for seniors available to almost anyone.
Payday loans, personal loans, and other types of loans are available to you even after you retire. Under different conditions, for any period, you can take the amount of money you need and spend it on your needs, and then return it from the next pension or other payments.
#2. Determine Your Budget
To properly manage your finances, you need to determine your budget. It is worth starting with a monthly budget, but you can also define an annual budget. The monthly will include all regular payments like utilities, television, Internet and phone, fuel, and food. The annual can include expenses for travel, seasonal clothes, necessary small home repairs, and purchasing gifts for the holidays.
After calculating all your estimated expenses, you can determine how much money is left. After that, it would be nice to set aside some of the money in a personal insurance fund or simply in a nest egg. This is your fund to cover various contingencies. It is worth allocating 10-15% of monthly income if such an opportunity exists.
You can use the rest of the money as you wish or save for something more important if you are planning a trip or a large purchase.
#3. Review Your Assets
After retirement, you will no longer receive regular paychecks, but this does not mean you will be left without income. On the contrary, if you previously worked and retired in due time, income sources may even be numerous; among them:
401(k) and Similar Plans
Gains in a 401(k) account are tax-free in the case of traditional 401(k)s retirement plans and are tax-free in the case of Roths. When a traditional 401(k) retirement plan account holder withdraws funds, that money (which has never been taxed) will be taxed as ordinary income. Roth account holders (who have already paid income tax on the money they contributed to the plan) will not pay tax on withdrawals if they meet certain requirements.
Both traditional and Roth 401(k) owners must be at least 59.5 years of age—or meet other criteria set by the IRS, such as being completely and permanently disabled—when they begin withdrawing funds. Otherwise, they will typically face an additional 10% early allocation penalty on top of any other tax they owe.
Roth IRA Individual Retirement Account. How does an IRA work? Unlike a traditional IRA, deductions to a Roth IRA are post-tax only, but any money earned using this account is not subject to further taxation. Early withdrawal of funds from the retirement accounts is possible without penalties, but with the condition that 5 years have passed since the first deduction.
Pension
Your former employer or union may pay you a defined-benefit pension.
In most plans, such payments begin after the retirement age of 65; however, there are cases when you can start receiving money earlier.
Social Security Benefits
The Social Security Pension Act, which is still in effect today, was signed into law by President Franklin Roosevelt in 1935. According to this document, all persons whose age exceeds the officially established threshold are paid a cash allowance, the amount of which depends on the average level of wages.
Do not forget that the later you start receiving payments, the greater your social security benefits will be. If you have other sources of income and assets, then it makes sense to wait until the full retirement age of 70 before you start receiving social security money.
Investment and Savings Accounts
You can also receive funds from your non-retirement accounts at any age. The amount of funds that you can receive from your individual retirement account depends on how much money and under what conditions you deposited there before.
If you have many accounts, a certified financial planner can help you with managing retirement funds.
Job Income
Just because you’re retired doesn’t mean you can’t have a part-time job, for example. You can work as a babysitter, walk dogs, or freelance.
It does not always have to be very profitable, and it is enough that any work helps to maintain the daily routine and social contacts.
In addition, you can also create sources of passive or conditionally passive income. The more such sources you have, the more cash flow they will generate.
The most common asset options that could generate income are:
- Stock;
- Bonds;
- Real estate;
- Patents, copyrights, and intellectual property;
- Websites and blogs.
#4. Save Money
“Setting aside money is a compromise. You take a little away from your today to improve your tomorrow.” – Bodo Schäfer, German author, speaker and entrepreneur, financial coach.
As we wrote earlier, saving is not always about denying yourself pleasure. Savings are also possible within your habitual lifestyle if you reconsider old views. Pensioners have access to discounts that were previously unavailable to them, as well as various promotions and offers. Here is a small list of what you can save and how exactly:
Buying Food And Household Chemicals
Most consumers (especially retirees) are aware of promotions and discounts on groceries and essentials. The purchase of some goods at a promotional price allows you to save up to 50% of the cost of the check. It is important to remember about grace hours when pensioners are given an additional discount, do not forget to use store bonus cards, and always check the expiration dates of promotional products so as not to throw money away.
Seasonal preparations will help with the grocery basket. Fresh vegetables and fruits, bought at a lower price during the season, diversify the table in winter if they are frozen, dried, and processed into preservation.
Payment For Utilities, Cable, Internet
A reduction in the amount of payment for housing and communal services in the form of compensation or subsidies is provided to pensioners and other categories of citizens, depending on the category of benefits. Therefore, when choosing a tariff for television and the Internet, you need to analyze which channels are really needed.
You can also save money on paying for mobile communications – often, users overpay for unnecessary services. To choose the best tariff, you need to analyze your needs and the tariffs offered by the operator.
Clothing And Footwear
At the end of the season, shops usually offer good discounts. For example, you can purchase winter shoes at a discount of up to 70% at the end of winter. Summer shoes are offered at a reduced cost from August-September. Also, discounts can be caught in online stores. Often, the price in a retail network differs from the price in an online store. Therefore, before purchasing the product you like, it makes sense to check the price on the online platform of the same trading network.
Health Care
The older you get, the more medical expenses will be. Therefore, it is in your interest not only to provide yourself with insurance but also to try to maintain a healthy lifestyle to stay in good shape for as long as possible and visit doctors less frequently.
Another important principle of saving the cost of medical services is visiting a doctor and specialized specialists in a timely and regular manner. For example, an emergency ultrasound for urgent diagnosis and treatment can be very expensive. Regular visits to the doctor will allow you to get important information in time. Failure to comply with the doctor’s recommendations or self-treatment is the risk of harming oneself.
Travels
You can save on group excursion offers (an excursion or a trip in a group often costs several times cheaper than an individual one). Many cultural and leisure organizations provide discounts for pensioners.
Federal and regional recreation programs offer subsidies for certain categories of pensioners (according to the profile of professional work experience and/or federal benefits).
You can find discounts on flights, trains, and buses for senior citizens. Entire cruises at a reduced price are also popular, where you can relax and spend time with peers with whom it will be comfortable and interesting.
Social service authorities also provide recreational and leisure activities for pensioners free of charge or at a reduced cost.
#5. Take Care Of Yourself
It’s great if retirement income and retirement savings allow you not only a comfortable life but also help and support your family. However, in retirement planning, put yourself and your needs first.
You have certainly done much to support the family, provide for children, and everything else. Put yourself, your interests, and your needs first now.
Do not refuse to help parents, elderly or sick family members, but your younger family members have the opportunity to earn on their own.
Final Word
Retirement brings about changes in your financial life that can be intimidating. Retirement finances can be less than your last salary, while retirement expenses can be somewhat larger.
This can make managing money in retirement seem like a daunting task. Still, with the right approach, you can easily distribute all your income and enjoy a new page in life without worrying about finances.