Smart Money Management Tips for Retirees
How to Effectively Budget and Save Money in Retirement
Apr 10, 2009
That happy day has finally arrived when the worker finally says a hearty goodbye to daily traffic jams, micromanaging bosses, and office politics. The newly retired person reaches into his or her 401(k), IRA, or other retirement investment vehicle and begins withdrawing retirement funds so diligently saved all these years. While saving is certainly a good thing, now the question becomes how to properly manage that money.
Why is Money Management in Retirement Important?
So much emphasis is placed on saving for retirement that learning how to budget effectively in retirement becomes secondary. Throughout their career, workers are taught the importance of participating in an IRA or 401(k) retirement plan, yet rarely is there any discussion on how to manage that money after retirement. The retiree will need to consider many factors when budgeting their money, including
- hobbies
- vacations
- health
- recreational activities
- age
- medical expenses
Money management in retirement is important for many reasons. While health can be unpredictable, lifespan has increased due to technological progress in medicine. Living longer means the person will need to exercise even more prudence in budgeting during retirement. Social security also becomes an issue. While many Americans believe that social security payments will financially cover the full cost of their retirement, in reality social security only pays around 40 percent of pre-retirement income.
Smart Retirement Money Management Tips
In withdrawing funds from retirement savings accounts, retirees should first consider taking money from their regular savings, money market account, or other investments while their retirement funds continue to grow. Then they can begin to withdraw retirement savings funds from their tax-deferred retirement accounts (e.g., 401(k), IRA) and tax-free retirement accounts (e.g., Roth 401(k), Roth IRA). Other smart money management tips include:
- waiting until age 70 to begin drawing social security benefits and receiving retirement plan distributions
- downsizing the home
- clipping coupons
- giving hand-made gifts such as blankets, pillows, birdhouses, paintings, or other crafty items (can be passed down to future generations: priceless)
- reducing spending on luxuries and spending mainly on necessities
- reducing impulse buying
- buying items on sale and shopping at thrift or consignment stores
- not shredding the credit card, but rather signing up for a cash-back or travel rewards credit card
- withdrawing cash at the bank rather than paying ATM fees
- reducing spending on eating out and cooking meals at home instead
- seeing a matinee when movie ticket prices are cheaper
- checking out movies on DVD from the library (free)
- budgeting for unanticipated expenses such as a broken air conditioning unit, new car, or water heater
- considering using home equity to help pay expenses or refinancing the home loan
- considering buying an annuity
Bottom Line on Smart Money Management Tips in Retirement
Bottom line, retirees will have to learn how to effectively budget their money during their retirement while balancing saving money with having fun. Retirees should dip into their regular savings, money market account, or other investments first, and then begin receiving distributions from their retirement accounts. Other money management tips including reducing spending on luxuries and waiting until age 70 to retire may help retirees save money on a fixed income.
See related articles, “How to Deal With the Emotion of Retirement,” “How Much Money Is Needed for Retirement?," and "Retiring Too Early Could Prove Costly.”
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