Your finances inevitably change after you retire. You might move to a new place, suddenly have a lot more time on your hands, or experience changes in your income. This can be a great opportunity to reassess your spending and saving habits and make sure your finances are going where you want them to go. Here are five tips for retirees who want to create and stick to a budget.
Consider all sources of income.
In retirement, you may have several sources of income beyond your 401(k) or other retirement accounts. For example, you may receive Social Security benefits, a pension, and earnings from part-time work. Make sure you consider all of this money when creating your budget.
It’s important to consider sources of funding outside your retirement accounts. For example, if you have a permanent life insurance policy, like whole or universal life insurance, the policy comes with a cash value component. You can borrow against the policy’s cash value and use it for any reason, including supplementing your income in retirement. This can be helpful during market downturns when you don’t want to withdraw from (or withdraw as much from) stock market-heavy investments, like your IRA or 401(k).
Regardless of where your income is coming from, if you elect to withdraw from your retirement accounts, you’ll want to plan these withdrawals in a way that ensures you’ll still have enough later.
Figure out your new expenses
Depending on how much your lifestyle changes and whether you move somewhere new, your cost of living could change a lot. When you retire, one of the biggest changes you’ll have to make is adjusting your budget for your new lifestyle. Your expenses may be different than when you were working, so it’s important to sit down and figure out what they will be. There are a number of factors to consider, including where you live, whether you’ll downsize or keep your current home, whether you’ll travel, and your healthcare costs.
Decide how to adjust your income if necessary
Because you’re adjusting to a new lifestyle, expenses may be higher or lower than you thought they’d be. Maybe you’re spending more on hobbies or cooking at home more often. You’ll want to see how much you’re spending vs. how much you’d planned to spend and adjust your withdrawals or consider other income sources if necessary. If you end up spending more, make sure this works with the amount of retirement savings you have.
Make a plan for healthcare costs
Healthcare costs, unfortunately, can be one of the biggest budget-busters for retirees. Make sure you understand what coverage you have and what costs you may be responsible for. Once you know this, figure out how healthcare costs can fit into your budget and how you can save for unexpected costs. This won’t be 100% accurate because health issues can be unpredictable, but having a plan and extra savings can help.
Make room for fun
Just because you’re on a budget doesn’t mean you have to be boring! Make sure to set aside some money each month for activities and entertainment that you enjoy. Hobbies are key to a fulfilling retirement and can help you stay active and social. Having more time on your hands can also be a great opportunity to start new hobbies and spend money on things that bring joy. Staying active and social may even mean that you ultimately spend less in retirement because you’re busy and not shopping out of boredom.
Your budget should be flexible enough to account for changes in your income and expenses. For example, you may need to adjust your budget if you suddenly have a large medical bill. Review your budget regularly and make changes as needed. Following these tips can help you make the most of your retirement income.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance cash value to supplement retirement income through policy loans, surrenders or cash withdrawals will reduce the death benefit, and may affect other aspects of the policy, such as necessitating greater outlay than anticipated and/or result in an unexpected taxable event.