Managing your Finances in Retirement

While your physical wellness is highly important to us, we at Senior Care Nation take a more holistic view of your health. Healthy living means achieving your best in your physical, emotional, mental, and financial life. Managing your finances in retirement can be both stressful and difficult. In 2018, AARP found that only 28% of Americans are financially healthy. For those over 50, with low to moderate levels of income, this number drops to just 17%. The study points to generational differences, as Americans today retire with more debt and fewer pensions.

You’ve worked hard for your money, saving, contributing to a retirement fund, and spending your money where it matters. Plan well to enjoy the freedom you’ve worked so hard for. Achieve financial health and save yourself the stress that money worries can put on your retirement.

Get on a Budget

For most people, transitioning into retirement means a much lower monthly income. This makes your budget even more important. When you know what you spend each month, and control your finances in retirement, you gain the freedom to live the life you want. There are two keys to an excellent budget. It must divide your spending into easy-to-manage categories. And it has to be simple enough that you can use it. Whether you opt for the envelope method of budgeting, use an app like Mint, or keep a spreadsheet, as long as you use it, it’s the right budget system for you.

Setting Your Priorities

Before you start working on your budget, give some thought to your financial priorities. What things are important to you, that you’d like to spend money on? What debts do you have that need to pay off? Are you putting money away as an inheritance? Once you have an idea of what areas of your budget are important to you, take a look at your current spending.

This will, in all likelihood, be the most time-consuming part of setting up your finances in retirement. Look through your spending from the last couple months to determine what you typically spend in various categories: housing, utilities, groceries, eating out, and other expenses.

Next, determine your total income to decide how much to spend and save each month. Finally, set a budget by spending category, keeping in mind your current spending. If there are areas you’d like to cut down, be reasonable. You’re probably not going to go from spending $100 eating out weekly, to spending only $80 a month. Make a realistic budget you can stick to. Consumer.gov offers a great free budget worksheet that you can print or fill out online. Another great tool is Every Dollar from Dave Ramsey, which can help you build your budget and keep track of it every month.

Simplify

If you have multiple bank accounts and credit cards with different banks, your finances can become more difficult to manage as you age. Consolidate accounts as much as possible. This will not only help you to track your finances more accurately, but enable your bank to detect fraud more easily should it occur. Next, automate payments and deposits where you can. Set up your income sources (such as social security) on direct deposit, and schedule automatic payments for consistent bills. The less upkeep you have to do on a monthly basis, the better. For anything you can’t automate, make a list. Write down payments you need to make, checks to deposit, etc. along with their corresponding dates. Keep this list available somewhere you won’t forget, such as with your monthly calendar.

Know Your Situation

Monitor Your Retirement Fund

It’s important to know how much you have saved up in retirement accounts, and to pay attention to where this money is invested. Most seniors tend to keep their money in types of investments that are low risk, such as bonds. A financial advisor can help you make sure your investments are conservative as you near retirement. Make sure you have a clear idea of when you will draw from your retirement account and how much that withdrawal will be. Make sure you draw from retirement accounts in the optimal order to get the most out of your savings. Managing your retirement funds well can greatly impact your finances over time.

Be Wise with Your Social Security

The social security system is quite complex, and frequently confusing. Understand your options before jumping in. There are serious penalties for claiming social security before full retirement age. Conversely, every year you wait to start claiming SS after this age, your benefit increases, until you reach 70. So if you can wait to start claiming, it can be in your benefit. There are also a lot of ways to take advantage of the spousal benefit, which you can read about in this SS Article from NerdWallet.

Think About Your Taxes

Understand your tax situation to avoid any surprises. Start with a firm understanding of your sources of income from 401k’s, IRA’s, pensions, social security, and other sources. Also note any pre-taxed accounts such as a Roth IRA that you may have. If you’re unsure, ask a tax professional whether any source of money you have coming in is considered income for tax purposes. You can often get these types of questions answered for free while filing your taxes. Otherwise, ask someone you trust to help you look into your financial situation. You can also utilize the AICPA’s Eldercare and Prime Plus services, which help seniors with financial matters.

Live Generously

We’re not telling you to dump your pocket book to bail out your kids when they overspend, or buy dinner for the neighborhood. We’ve all heard horror stories of the well-intending being taken advantage of by strangers, friends, and even family. Those are situations you should indeed be wary of. However, living generously in small ways can allow you to invest your time where you want to, and make a difference. Be generous with your time and your money, volunteering in your community, taking your grandchildren out to coffee, or buying the perfect birthday gift for your best friend. When you budget well, you gain opportunities to give your time and money to causes you care about. Carefully managing your finances in retirement allows you to enjoy the benefits of a generous life.

Avoid Scams & Fraud

Especially in retirement, your finances become the target for many types of fraudulent activities. You can take steps to protect yourself and your family. Check your privacy settings on social media to make sure your information is only being shared with friends and family. Add your phone number to the national do not call list, as well as statewide ones if applicable.

Don’t give out your credit card information to callers, and be careful to only click on email links from trusted sources. The FTA provides a guide to avoid being a victim of fraud which can help you understand the tricks scammers use to get your data.

Be Prepared for Challenges with Age

Even if you show no signs of impaired memory or other cognitive functions now, you will likely experience some cognitive impairment as you age. Many seniors experience memory trouble, or become unable to make certain decisions on their own in older years. Prepare for this in advance, just in case. Select one or two trusted family members who can be your financial advocates in your retirement. Ask them to watch for early warning signs of a slipping memory, or poor decision making. You can also pre-authorize lawyers, financial advisors, and other key persons to contact your chosen advocates, should they ever question your fitness to make important decisions. Please make sure that as you select someone that this person is entirely trustworthy. To avoid being taken advantage of, don’t give this power to someone who asks to borrow money from you, or has a history of poor decision making himself.

Have a Partner

For most adults, memory and other cognitive abilities start to decline by one’s 70s, making it difficult to be sure bills have been paid on time, and to do the mental math involved in paying tips and balancing a checkbook. Asking a trusted family member to be your back up. Ask a child or other loved one to review financial decisions, and help ensure bills are paid on time. If you plan this early, you’ll have the system in place should you experience memory trouble as you age. Granting your chosen person access to bank notifications can also help protect you from fraud by alerting them to any unusual activity.

Enjoy Your Retirement

All of these rules and tips can be overwhelming. You don’t want your hard-earned retirement to be taken up jumping through financial hoops, and meticulously monitoring accounts. Make a plan, and schedule regular times to take care of financial tasks and reassess the plan. Outside of those times, let your plan work and enjoy yourself. Within your budget, spend money on the things you enjoy, and utilize your free time for hobbies, time with family, travel, and volunteer work. When your plan is in place, you get to spend your time doing what you want to do, not worrying about whether your savings will see you comfortably through as you age.