14 Tips for Managing Money in Retirement

My father turned 70 this June. He hung up his gloves this summer, as millions of other Americans do when they reach that age. Note that he was not a boxer, but he worked as hard as any champion ever to get in the ring. His long-awaited retirement is a well-deserved retreat from the workplace.

Like most recent retirees, he’s still getting used to the idea of not receiving a routine paycheck. He just has to survive the withdrawal and take minimum distributions (RMDs) from his retirement savings. Between rising healthcare costs and premiums, increasing inflation, and waiting several years for his full Social Security benefits, he’s not sure he can make ends meet now.

Recently, it has become a notable phenomenon that retirees are forced to stay behind due to these financial pressures. However, I doubt Mom will be one of them, as she is likely to follow these 14 strategies to stretch her retirement savings.

Tips for managing money in retirement

Whether it’s something as seemingly complex as an income source like a Qualified Longevity Annuity Contract (QLAC) or something as simple as creating and properly following a household budget, there are numerous steps you can take to ensure your retirement plan doesn’t sit idle for years to come.

1. Prepare a budget

Financial stability is important at any age. It starts with healthy personal finance habits and smart money management. Most retirees stay financially disciplined, relying on the family budget.

A budget is critical to a financially healthy retirement because it tells you what your income is, what your expenses are, and how much money you’ll need to be comfortable given those parameters. It does all this clearly and objectively.

Specifically, the budget shows how Social Security benefits and RMDs from Roth IRA or other retirement accounts stack up against recurring expenses such as medical care, income taxes, utility costs, food, transportation, and other expenses.

Your budget can also help you prepare for unforeseen retirement expenses and emergencies, such as car problems or non-medical procedures.

Finally, your budget helps you understand what you shouldn’t spend your retirement money on. If your bottom line seems too tight, maybe it’s time to cut back on your weekly golf outings or dining out at your favorite restaurant.

2. Cut back on your spending

You need to turn off the lights, stop unnecessary water usage, and manage the food in the refrigerator. These recurring costs accumulate, and you generally can’t avoid them.

Just like entertainment, recreation, and electronics, prudent purchases often contribute to a well-managed retirement budget.

However, that doesn’t mean you shouldn’t enjoy your post-retirement years or completely give up activities like traveling, dining out, or home renovations. But you have to fund these activities using savings specifically designated for long-term goals, while also attempting to reduce immediate expenses. Otherwise, you might deplete your retirement accounts and be forced to return to work.

Knowing how and where to save money on a tighter budget will keep you on the financial planning path you embarked on decades ago when you first opened an IRA or other retirement account. Your goal then, as it is now, is to maximize your retirement savings to live comfortably on a reduced income.

Which expenses are considered unnecessary? Let’s consider:

• Cable Television: Join the millions of Americans who have already switched to subscription-based streaming services, saving $100 or more per month in the process.
• Reduce Eating Out: Let’s not completely forgo dining at your favorite restaurants. However, remember that the average cost of eating out is $13 per meal, while a home-cooked meal costs only $4 per person.
• Expensive Cell Phone Plans: Many mobile carriers offer low-cost plans for seniors. Explore options like T-Mobile, which provides various plans for individuals aged 55 and above.

3. Be strategic with your withdrawals

One effective way to extend your retirement funds is to manage your withdrawals wisely. To do this, you need to calculate your annual survival expenses. Then determine a safe withdrawal amount each year to cover these needs, considering the potential income tax consequences of these withdrawals.

The 4% rule is a good starting point. If you have built a comfortable nest egg, you should be able to withdraw 3-4% annually for 30 years without exhausting your funds.

You can also postpone a significant portion of your Required Minimum Distributions (RMDs). Specifically, annuities like qualified longevity annuity contracts (QLACs) defer RMDs until age 85. QLACs not only extend retirement income but also alleviate the income tax burden of RMDs.

A QLAC can be purchased for as little as $135,000 or 25% of your traditional IRA or eligible retirement account. You can then delay QLAC withdrawals until a self-determined age, considering your living expenses, life expectancy, and other factors.

If you have a Roth IRA, annuities are less crucial, as Roth IRAs do not require RMDs.

4. Delay receipt of social benefits

Due to stock market volatility and persistent high inflation, more individuals are opting for early Social Security claims. Consequently, while the maximum monthly payment is $3,345, the average American receives $1,614 monthly in Social Security benefits.

However, many adults are unaware that the program is inflation-adjusted, ensuring it keeps up with changes in the Consumer Price Index. Therefore, postponing Social Security benefits is an effective strategy to enhance retirement income. The longer you wait, the higher your benefits will be.

Though you can commence payments at age 62, if you wait until age 70 to fully retire, you’ll receive the maximum eligible monthly benefit. This would be $4 in 2022, or $1 more per month for retirement beginning at age 194.

5. Develop alternative income streams

To delay retirement account withdrawals and Social Security benefits, consider part-time employment.

A fulfilling part-time job can supplement your Required Minimum Distributions (RMDs) with steady, job-based income. It also affords you the chance to work in fields you’ve long been interested in, but perhaps couldn’t pursue during your career.

Another option is to create passive income streams. There are several approaches, including:

• Invest in Dividend-Paying Stocks: Shares of dividend-yielding companies have historically outperformed the market, offering returns while you hold the stock. They also tend to be less volatile than non-dividend-paying stocks.
• Allocate to Fixed Income Funds: Also known as debt funds, these mutual funds provide another income source with low risk. With a 100% allocation to fixed income, bond funds have historically yielded positive returns 86% of the time. Vanguard reports an average annual return of 5.33%.
• Generate Rental Property Income: Instead of returning to employment, consider becoming a landlord. Many companies specialize in turnkey rental properties. Despite recent interest rate increases, mortgage rates remain historically low.

6. Downsize your house

I cherished the moment when my mom retired this summer. However, this decision, which involved selling my childhood home, left me very sad. Despite my emotions, decluttering the house after retirement makes a lot of sense. My parents no longer need several thousand square meters of an empty nest.

Saying goodbye to a home is never easy, but you can prepare by taking some simple steps. Measure your new space to determine what will fit or won’t. Consider your wants and needs, focus on the essentials, and decide what can be sold, gifted, transferred, or donated.

Lastly, don’t be afraid to ask for help. Your children will want to create ultimate memories of their childhood home. It’s easier to see a box of knickknacks being carried away by the family than seeing them go to waste.

You won’t be alone in making this decision. Millions of retired brothers and sisters are doing the same.

7. Consideration of a reverse mortgage

If the prospect of listing, showing, packing, selling, and moving seems too daunting, you can tap into your home equity to solidify your retirement plan. If you own your home free and clear and don’t plan on moving soon, a reverse mortgage is often the best option.

A reverse mortgage is a special type of mortgage loan that provides you with a lump sum or regular payments. You aren’t required to make monthly payments, freeing up funds to allocate to other areas of your budget.

The pros are as follows:

• No fixed term: Reverse mortgages don’t have fixed terms, so you can live there indefinitely. The loan is due when the property is sold, the owner passes away, or moves out.
• Ability to stay at home: You don’t have to downsize or minimize your property based on square footage because you can continue to stay in your home.
• Increase in your retirement amount: You can tap into your home’s equity to help increase your nest egg, especially if you don’t have sufficient retirement savings or income.

The cons are as follows:

• Interest steadily increases: Interest accrues on the mortgage. Since there are no monthly payments, the loan grows over time with the interest compounding.
• Vulnerability in a weak housing market: The housing market can change abruptly, affecting your home’s value and potentially reducing your equity.
• Impact on inheritance: Your heirs may receive a reduced inheritance because reverse mortgages typically require the home to be sold to pay off the loan.

8. Considering the idea of relocating to a more suitable area

Everyone has their reasons for why their grandparents retired and moved to Florida. In the 1970s and 1980s, Florida boasted low taxes, few cities, and ample cheap land.

Those days are gone. Currently, over 20 million people call Florida home. Home prices in cities like Miami and Tampa rival those in larger cities like New York and Chicago. There are better places, both in the US and abroad, for retirees to consider relocating to.

However, this doesn’t mean that finding value in the “Sunny” state is impossible. Just like any other part of the country, there are shopping options and more affordable markets. Discovering the most suitable places to retire isn’t a challenge. There’s a significant amount of lovely, inexpensive “waterfront” property in the Great Lakes region. You don’t need to pay Aspen prices for mountain views in the Appalachians.

Interested in exploring what the rest of the world has to offer? Think about retiring abroad. In Spain, leveraging the strength of the US dollar, which has recently reached parity with the euro, you can purchase a simple yet absolutely gorgeous house for less than $200,000. And I’ve heard the tapas and wine aren’t too shabby either.

Whichever state or country captures your attention, affordability is likely to be found. Though, as a native Floridian who won’t be retiring to the Sunshine State due to its unrelenting humidity, I’d suggest considering somewhere more temperate.

9. Pay off debt

People who come to Pula and are looking for immediate investment opportunities always appeal to me. Personal Finance 101 is clear on this: You should always pay off your debt first.

Getting rid of those monthly car payments puts a few hundred more dollars in your pocket. And I don’t know anyone — retired or not — who couldn’t use a few hundred extra dollars every month.

Start chipping away at your debt that carries the highest annual percentage rate (APR). This will often be the small square piece of plastic that most consumers are addicted to. According to the CFPB, the average credit card interest rate in the US is 19.2%.

If you stick to a household budget, then you should only use a credit card for emergencies or — if you’re extra disciplined — for points, rewards, and cash back. But that requires paying off balances immediately, or risking delinquent debt, which increases by about 20% each year.

10. Saving money while traveling

Travel is probably the one that retirees look forward to the most, but it gets expensive quickly. So, use these resources to save money when traveling during your golden years:

AARP offers members discounts at car rental companies, including Avis, Budget, Payless Car Rental, and Zipcar; hotel discounts at “Best Western”, “Wyndham”, “Hilton Hotels”, and others; and airline discounts from British Airways and Expedia.

Airfare Discounts for Industry. Even without AARP membership, some airlines offer senior discounts. Both United and Delta offer them on select flights, but they’re not available online, and you’ll need to call to find out.

Cruise Discounts for the Industry. With cruise lines like Carnival and Celebrity, you don’t even have to wait until full retirement age. Both offer great discounts to those 55 and older.

11. Living a healthy lifestyle

Healthcare costs tend to increase as you age, but it’s never too late to start living a healthy lifestyle. When you embrace healthy living, you’re not saving money that goes toward bad habits; you can also reduce your lifetime medical expenses.

For example, if you smoke, quitting now saves you $10 per pack and significantly reduces your risk of lung and cardiovascular complications. Sometimes giving up red meat in favor of poultry, fish, and plant-based foods is similarly cost-effective and healthier.

Even moderate exercise has great benefits. Exercising a few times a week — for as little as 150 minutes in total — reduces the risk of heart disease and cancer and increases life expectancy by up to seven years. If you stay healthy, you’ll save more of your retirement money, or at least avoid spending it on preventable illnesses.

12. Savings on medical expenses

Even if you live as healthy a lifestyle as you can, your medical expenses will increase as you move into your golden years. Healthcare costs for those 65 and older exceed $11,000 per year. These are the highest expenses you will ever incur in your lifetime.

There are many ways to save on medical expenses. First, always stay online. By doing so, your insurance coverage covers most (if not all) of your costs out of your copay. If you go off-grid, costs will skyrocket. A $22,000 medical bill could cost you $100,000 if you stay in-network. But according to information crunched by the Small Business Majority, it’s $2,800 if you leave the network.

Second, unless it’s a true emergency, avoid the emergency room. Even a non-life-threatening complaint can cost thousands if brought to the ER instead of a walk-in clinic, urgent care facility, or telehealth consultation with your regular provider. Unless you have an acute medical condition, try any of these options first.

13. Rebalancing your portfolio

You should rebalance your Roth IRA or other retirement accounts to ensure your retirement savings last. As you age, you want to reduce your risk exposure and avoid the pitfalls of volatile asset classes.

For example, instead of taking a position in overvalued growth stocks in the technology sector, which often don’t pay dividends, you can turn to the nearly risk-free Treasury I Savings Bonds.

I Bond yields are inflation-weighted, so they hold their value better than savings accounts. Between April and October 2022, I Bonds paid 9.62%, annualized — higher than the rate of inflation of about 8% over the same period. You can buy I Bonds up to $10,000 for anyone at TreasuryDirect.gov, more so if you use your tax refund to buy them.

If you want to keep some stock exposure, that’s fine. But watch out for dividend-paying stocks and ETFs. They both regularly outperform the broader S&P 500.

This includes the Dividend Kings and Dividend Aristocrats, which have consistently raised dividends for 50 and 25 years. These value stocks are considered blue chips due to their low risk, high quality, and reliable performance.

High-dividend exchange-traded funds are another option. ETFs offer a basket of stocks across a specific sector or industry, thereby increasing exposure while reducing risk.

Stay away from ETFs with expense ratios above 0.75% — those management costs can erode potential gains. Fortunately, it’s easy to find high-dividend yield ETFs with lower expense ratios. This will help your retirement savings grow safely.

14. Take advantage of industry discounts

Finally, taking advantage of big discounts helps you save money on things that are easily overlooked, like online shopping, drugstore items, and groceries. You may not save much on individual purchases, but big discounts add up over time.

Amazon.com offers a discounted price for Prime memberships to seniors enrolled in Medicare or other government assistance programs. Walgreens offers Industries Day on the first Tuesday of every month with savings of up to 20%.

Many supermarkets also offer great discounts. Fred Meyer gives seniors a break on the first Tuesday of every month, and Harris Teeter offers a big 5% discount every Thursday.

Conclusion

With inflation at historic highs, the amount of money you’ll need to retire comfortably is increasing rapidly.

But even after you stop working, there are many things you can do to protect and grow your retirement savings. You can create alternative income streams. You can tidy up your investment portfolio. You can even use a reverse mortgage to downsize your home or recoup some of its value.

Managing your finances after retirement is extremely important to ensure a comfortable and stress-free life until the end. Retirement is a stage to enjoy the fruits of labor and lead a productive life. Retirees can ensure that their golden years are full of joy and peace of mind by following the tips discussed above.