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A Guide To Managing Your Money In Retirement
Although we all understand the financial realities of retirement in theory, the reality of it can be overwhelming. The decrease in income is daunting, especially when you consider that you will have to live on this income for an average of 18 years. However, managing your money during your retirement is a matter of good planning, no matter how much you have to work with. These are the elements you need to consider when putting together a solid financial plan.
Ideally, you should have been saving for retirement since your 20s or 30s. However, the average American in their 60s has only saved $172,000, which for many is a long way short of the ideal goal. If you still have a few years to go until retirement, but are not satisfied with how much you’ve saved, now is the time to kick your saving efforts into high gear. This guide to retirement by Forbes covers all your options in this situation.
If you have already retired, chances are you felt your savings were enough to last. That’s great news, but you still need to make sure you are ready to make that money last as long as possible. That’s when the next step comes in.
The most important part of your retirement financial plan is simply setting a realistic budget. You need to know how much money you have and how much money you can afford to spend. This will then influence several other decisions:
- Living Arrangements – Can you afford to live in your current home? Or, would you be better off downsizing for a cheaper place and cashing in the equity of your house?
- Lifestyle – Will you have to make certain sacrifices, such as eating in restaurants or going on multiple trips every year? Or, are these things priorities for you, in which case you will have to make savings elsewhere?
- Income – Do you need to find an alternative source of income? This could be active, like a part-time job, or passive, like investing in stock.
The AARP Retirement Calculator can help you get a better idea of how much you will need in retirement income, as well as the different ways you can go about funding it. If you are not used to creating a budget manually, you could benefit from using an app like Mint that does a lot of the work for you.
Insurance, especially health insurance, is an important part of financial management in retirement. Health care expenses can take a big bite out of your savings and budget, so it’s essential to have the right coverage.
While Medicare is a great benefit, there are gaps in its coverage, which is why many retirees opt for supplemental coverage like a Medicare Advantage plan. For example, Medicare Advantage Plans offered provide additional coverage for dental, vision and prescriptions. Without that extra coverage, you might otherwise pay out of pocket. If you are eligible or near the age of eligibility, you should review the requirements, coverage and enrollment period.
Money management in retirement will depend greatly on the financial decisions you made throughout your life. If you saved diligently for a nest egg for many years, paid regularly into a 401(k), and made sound investments, chances are you will have less to worry about.
However, even if you haven’t achieved the savings goals you wanted, there are ways to earn more money, save better, and modify your lifestyle so you can enjoy your retirement in peace and tranquility. The only thing you have to do is address the issue head-on and commit to a plan, and the sooner you do this the better.
Contributor Michael Longsdon.