Make Your Retirement Last with Sound Money Management Practices
Americans who reach retirement age today can expect to live another 15 to 20 years, and that's one of the biggest reasons why saving for retirement is so important when you're younger. Once you reach retirement age, sound money management skills help you make the most of your retirement income.
Many Americans are postponing retirement for the simple fact that they don't have enough money to retire with a decent standard of living. Over half of US workers have less than $25,000 in total household savings and investments (exclusive of homes), and nearly 30% of Americans are not confident they'll be able to retire comfortably. Some people are able to postpone drawing from Social Security until age 70 to help ensure a more comfortable retirement, but many people still want to retire at 65, and that may require budgeting and other good money management practices.
How Much Will You Need?
The general rule of thumb is that you need to replace 70% of your income when you retire. You don't need to replace all of it, because some expenses go away. However, some financial experts say you'll need more than that - 80% or more of your working income to live comfortably. Spending as you did while you were working isn't good money management during retirement, but fortunately, many expenses drop off or go away once a person retires:
•You won't be putting money into retirement savings.
•Many older people have paid off their mortgage (but still have taxes and insurance).
•Commuting costs disappear.
•Many retirees no longer need life insurance, or can get by with a smaller policy to cover funeral costs.
•Many family expenses like clothing, car insurance for teens, and college costs are no longer a factor.
•Senior couples often find they no longer need a second car.
For Sound Money Management, Know Your Priorities
To maintain good finances after retirement, you have to know what your priorities are now that you've made this major life change. Think about what you really want from your retirement years. Do you want to travel more? Spend more time with grandchildren? Play golf or tennis more? Volunteer more? Knowing your lifestyle goals helps you devise a budget that allows you to enjoy life without overspending. Here are some specific money management tips for retirees.
Gradually Rein In Spending
Immediately making draconian cuts to your budget will only raise the chances of a big spending binge later. If you were used to getting coffee on the way to work every morning, cut back to three times a week at first. Make sure your budget includes choices so that you don't feel as if every ounce of fun is being sucked out of your life. And when you stock up, make sure you're stocking up on nonperishables and personal care items rather than things like fresh produce or meat, which can spoil before they're consumed in a household of one or two people.
Make Sure Maintenance Has a Line Item in Your Budget
Regularly maintaining cars, home heating systems, and even your health is smart money management for retirees. The $30 to $40 you spend on a regular oil change is pocket change compared to replacing an engine, and the couple hundred dollars you'll spend on regular dental care will save you both pain and money over letting problems worsen.
Start Anew at Keeping Up With Income and Expenses
In retirement, both income and expenses change, so the budget you used when you were working may no longer be relevant. Know how much you have coming in each month, and record what you spend. If you're drawing on investments, make systematic withdrawals rather than as-needed withdrawals, which can encourage overspending. Systematic withdrawals function much like your paycheck did, and can help you develop the money management skills you need that are specific to retirement.
Take Advantage of Benefits for Seniors and Retirees
Many businesses offer discounts for seniors, so why not take them? As a retiree, you may also qualify for nonprofit and government benefits that you didn't qualify for before.
Reevaluate Your Housing
Many retirees sell the homes in which they raised families and buy something smaller, or move into a condominium where they won't have to take care of things like mowing. Single retirees may consider having a roommate to help cut expenses and have added companionship and safety. Taking on a roommate isn't something that should be done on impulse, but if you learn the risks and rewards, it can be an option that helps with money management.
With retirement, some financial obligations go away, and others arrive, so it's important for retirees to practice sound money management principles during this life transition. Knowing your priorities, and understanding where your retirement income comes from and what it's used for help you build a solid foundation for an enjoyable retirement.
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