Exiting the workforce after decades can be a stressful transition for most people, especially those dependent on their retirement savings as the primary source of funds. So, if you thought saving for retirement was tough, you’ll soon realize that spending that money wisely and effectively is much harder.
From monthly recurring bills and groceries to occasional trips or annual vacations, home/vehicle purchases, and medical emergencies/long-term treatment, there are several unknowns to consider. Therefore, you need to prepare proactively to ensure you spend sensibly.
In this post, we’ll share five retirement income planning and spending tips to ease the transition to your post-retirement life.
5 Tips to Manage Your Retirement Income Effectively
- Go Beyond the 4% Rule
For those unfamiliar with the 4% rule, this general rule of thumb suggests retirees should withdraw no more than 4% of their savings in the first year. For example, if you have $500,000 in savings, you should remove no more than $20,000. Using this amount, they can pay for monthly groceries, gas, medicine, and bills.
There are also ways you can go beyond this rule. For instance, if you have another source of income (rent, stock dividends, affiliate marketing, etc.), you can avoid touching your retirement savings and keep them for large, one-time expenses, such as annual trips or vacations. In other words, you can withdraw as little as 2% and travel on a budget. - Structure Your Retirement Income Based on Expenses
If you don’t want to opt for the 4% or less rule, break down your post-retirement expenses based on your needs, desires, and lifestyle. Most retirees have different post-retirement goals. Some want to adopt a minimalist lifestyle and use the money to cover their utility bills and essential expenses.
In contrast, others want to travel and live a more luxurious life after working for decades. Regardless of the category, you fall into, you need to calculate your monthly spending to include all essential and non-essential expenses. By doing this, you’ll notice that most months will likely have different amounts, so you can remove what you need. - Opt for Medicare Plan C and D
Medicare Part C and D are non-government Medicare plans offered by private insurance companies. Medicare Part C covers both inpatient and outpatient care, including admission, tests, diagnosis, treatment, meals, etc. Similarly, Medicare Part D covers prescription medications.
The biggest benefit of opting for either of these plans is to minimize out-of-pocket expenses for seniors relying on their retirement savings as their primary income source. For instance, many seniors require dental, vision, hearing, and wellness care programs, which aren’t covered by Plan A and B. Therefore, spending on monthly Plan C and/or Plan D premiums is a great way to cover these expenses. - Consider Part-Time Gigs or Projects
Just because you’ve officially retired doesn’t mean you can’t work part-time or take on small gigs for a quick payday. For instance, you can freelance in your professional field. There’s a huge demand for seniors in different market sectors, including real estate, education, and sales. You could work as a tutor, virtual assistant, remote sales agent, and so on.
This way, you can limit your retirement income spending and use your part-time earnings to cover some or even all of your expenses. - Look for Ways to Cut Back on Fixed Expenses
There are several ways you can reduce your monthly expenses. For instance, if you own a large house, you can downsize and move to a smaller apartment or senior living community center. If your home uses a lot of energy, you can use some of your retirement savings to invest in solar power and reduce your monthly bill considerably.
Other ways to cut back on fixed expenses include
- Buying a more fuel-efficient car or electric vehicle to save gas.
- Cooking and eating at home.
- Reducing unnecessary subscriptions (Netflix, HBO, etc.).
- Invest in smart home tech (lights, air conditioning, heating, cookers, etc.)
So, there you have it – 5 great retirement income planning and spending tips. While there are many other ways to manage your post-retirement expenditure, the tips on our list are well-tested and can offer the most saving benefits.
The point of this post is to help you understand the importance of building your post-retirement spending strategy. This understanding will allow you to ensure your savings last as long as you intend them to and cover all the expenses you plan.
So, whether you’re looking to lead a simple life after retirement or experience the things you missed in your professional life, take your time to assess your goals and plan everything timely. For expert guidance, get in touch with Raymond James’ financial advisors at Four Pillars Financial Group.