In some ways, managing money in retirement gets a little easier than before. You only have the money you have, so your options are somewhat simpler and more limited. On the other hand, the rules of money management shift in retirement so it may seem more complicated to you.
No matter whether you find it easier or more challenging, you’ll want to prepare for managing money after retirement. Here are 10 tips to help you plan:
1. Plan to Be Tax Efficient with Withdrawals
Every penny counts when managing money in retirement and that is especially true when it comes to tax savings.
Every retirement account you have may be taxed differently and you will want to be strategic with how and when you take withdrawals from each bucket. A few tips to consider:
- Prioritize withdrawals for your Required Minimum Distributions (RMDs) – mandatory withdrawals that start at age 73 starting in 2023, and 75 in 2033. (The Boldin Retirement Planner automatically calculates these withdrawals and it can be useful to look at these projections.)
- Consider a Roth conversion to spread out when and how much you are taxed. (Let the Roth Conversion Explorer in the Boldin Retirement Planner help you create a conversion strategy based on your financial goals.)
- Be aware of how much you withdraw each year and how the amount impacts your tax bracket.
Taxes are really complicated and what is best for you is different from what is best for anyone else.
The Boldin Retirement Planner is a comprehensive planning platform that has powerful tax capabilities. It will estimate your RMDs, help you devise a Roth conversion and tax efficient drawdown strategies.
However, tax efficiency is one compelling reason why you might want to work with a good financial advisor for retirement. You will want to look for someone with experience specific to income taxes as well as someone familiar with retirement drawdown strategies. (Many financial advisors are well versed in helping clients save money but have less experience with managing and drawing it down in retirement. Book a free discovery session with a Certified Financial Planner® from Boldin Advisors.)
Retirement and Tax Planning, A Big List of Tips for Keeping More of Your Own Money
2. Focus on Creating Retirement Income
If you have been saving money for retirement, you have probably been worried about stashing aside as much as possible and maximizing your returns on investments.
However, when you retire, most experts recommend that you worry less about returns and more on figuring out how to turn your retirement assets into reliable retirement income.
In fact, research indicates that retirees who have guaranteed their retirement income are happier and much less stressed than retirees who make unpredictable withdrawals from their retirement accounts.
3. Make Trade Offs, Know What is Important to You
“I want it all and I want it right now” is not a retirement money management mantra that works well for almost anyone.
The good news is that at this point in our lives, we know – better than ever – what we like and what we want. If you focus on what is important to you, you may find that you can spend less overall.
If a trip to Europe is on your list, you can probably make that happen no matter your finances. It just may require a lot of prioritizing and cut backs in other areas of your life.
4. Prioritize Spending on Yourself
Family is one of our biggest sources of joy. However, unless you have budgeted for helping adult children, brothers and sisters, or your own parents, you simply might not have the money to fund their lives and your own.
Once you are retired, you do not have as much opportunity to make money. You are required to live with what you have. In retirement, every expense needs to be accounted for.
Learn more about the problems of boomerang kids, helping out your own parents and how to prioritize paying for college vs retirement.
5. Look at Your Home Equity
Experts predict that home equity is going to help out most of us lucky enough to own a home.
For most households, home equity represents our biggest source of wealth and there are a variety of ways you can use that wealth to help pay for retirement.
- Downsizing is an efficient way access the money you have in your home and a great option if you are living in a relatively expensive location or in a home that is too large for your needs in retirement.
6. Wait as Long as Possible to Start Social Security
The differences in lifetime value between starting Social Security at age 62 and delaying until 67 or later can be hundreds of thousands of dollars.
Social Security offers you guaranteed monthly income for as long as you live. If you can wait to start it, you will enjoy a higher standard of living.
Use the Social Security Explorer in the Boldin Retirement Planner to assess the best time to start or look at Social Security as a part of your overall retirement plan.
7. Be Prepared for Spending Shifts
Numerous studies have shown that retirement spending goes through predictable phases. When we first retire, we might spend more than before — we are active and doing lots of things. After that, we enter a period of slowing down and staying closer to home and we spend less than at almost any other period of our lives. In old age, medical expenses cause spending to spike.
When planning for managing money in retirement, it is useful to be mindful of these shifts. The Boldin Retirement Planner lets you set different spending levels and enables you to plan medical spending.
8. Have a Plan for Out of Pocket Health Expenses
Fidelity Investments has been tracking retirement health care costs for years. Their most recent data predicts that a 65-year old couple retiring in 2022 can anticipate spending $315,000 in health and medical expenses throughout their retirement.
This amount will be spent on deductibles, co payments, premiums for supplemental coverage, prescription drugs and other expenses that Medicare doesn’t cover, such as hearing aids and eyeglasses. However, this amount does NOT include the costs of a long term care need which could mean another $100,000 and more in spending.
You can mitigate spending by staying healthy, exploring the best possible supplemental Medicare coverage and researching creative ways to cover a long term health need.
9. Talk with Family, Especially Your Spouse
According to a Fidelity Study, 47% of couples disagree on how much savings are needed to maintain their desired lifestyle (if they agree on desired lifestyle).
Furthermore:
- Couples have different ideas for how they want to spend time. “Men are significantly more likely to envision indulging in their favorite sports, women are more likely to envision spending time with family, enjoying hobbies and volunteering in their local community.”
- Thirty-six percent of couples either don’t agree, or don’t know where they plan to live in retirement.
Because your retirement money management involves both you and your spouse, it is important that you get on the same page for spending.
10. Keep Planning: Do a Monthly or Quarterly Review
Retirement is not the end of the road for managing money in retirement. You can not simply create a retirement plan, retire and live happily ever after.
You need to keep assessing your situation and adjusting your plans as you move through life. Maybe your priorities change or your investments perform differently or perhaps you decide to go back to work. These events will profoundly impact your overall financial well being.
Monthly financial reviews are a great way to stay on top of your financial wellness.
The Boldin Retirement Planner is a unique tool that let’s you assess where you are now and then adjust and maintain your information over time.