Many retirees live on a more or less fixed income. Because of this, learning how to save money while retired can help you manage your personal finances. There are many actions you can take to minimize your financial output and help extend the life of your retirement savings.
Today, we'll discuss some of the most helpful tips that can help retirees start saving and stop worrying.
Create a Budget
Creating a budget helps you understand how much money you spend. Knowing this can help you determine how much money you need. This is something you can actually accomplish before you ever retire. Creating a retirement budget early on can help you determine your savings goals for the retirement you want.
When creating a budget, it's helpful to factor in things such as:
- Fixed expenses
- Essential spending (grocery stores, cell phones, etc.)
- Non-essential spending (fun money)
- Annual bills (taxes, etc.)
- Healthcare costs
- Emergency fund ("Rainy Day" fund)
- Income (retirement benefits, social security, any additional income)
Some expenses, such as your electric bill, might require some estimating. For example, some companies might bill customers for electricity used while others bill at a fixed rate. Even at a fixed rate, you could still receive an end-of-year bill for overuse. It's helpful to determine your average usage of bills like this based on prior years to help you create a more accurate budget.
If you choose to get more detailed with your budget, calculating potential inflation and other price increases over the years can help you figure out how much money you might need to be comfortable in the future.
Maximize catchup IRA and 401(k) contributions
When you get close to retirement (usually around age 50), you can make catchup contributions to your retirement plans. Catchup contributions raise the annual contribution limits for your IRA and 401(k) accounts to help you save more to prepare for your retirement. In 2022, those catchup contribution limits allow you to save an extra:
- $6,500 for a 401(k)
- $1,000 for an IRA
These catchup contribution limits go up often, usually annually. Maximizing your contributions (contributing the maximum allowable amount) every year can help you save more money and be more prepared for retirement.
Review your insurance policy
Retiring is a major life change. When life changes, your needs often change with it. Reviewing your insurance policy can help you in multiple ways. It can help you make sure that you:
- Receive appropriate healthcare
- Pay an affordable price
- Have low fees associated with healthcare
Reviewing your insurance policy can help you find a policy that lowers costs for you across the board—and this is true whether you're retired or not.
Purchase a Medicare supplement
Medicare is an extremely useful tool that helps pay for many costs associated with healthcare. It's also an imperfect tool—it covers a lot, but not everything. Fortunately, many Medicare supplement plans exist to help fill in those gaps. Each of these plans covers different costs—copays, foreign travel costs, extended hospital stays, etc. So, it's best to research the available supplement plans to help you find what works best for your needs and budget.
Downsizing, in this instance, means reducing your assets and belongings to the essentials. To downsize, it's helpful to take an extensive inventory of everything you have (from big items like your home and cars to everyday items like books). Then, you can make a separate list of everything you need.
What you get rid of is entirely up to you—if you want to keep that full bookshelf, do so! But finding things you can live without—especially ones that come with big expenses or bills—can help you save money in the long term.
If it helps, you can sell items you don't need to help you earn and save even more money. And, once you have fewer things, you might find that you don't require as much space as you thought you did. This can help you find a smaller, more affordable living space, should you choose to do so.
Downsizing also gives you an opportunity to find other ways for saving money around your home. For instance, you might find more energy-efficient lightbulbs that can reduce your electricity bill. Or you could realize there are several streaming services you pay for and rarely (if ever) use.
Consult your tax preparer
If there's anyone who can help you save money on taxes, it's likely the person who prepares them for you. Consulting with your tax preparer can help you determine how retiring might affect your taxes. In many cases, your retirement income might get taxed differently than your income pre-retirement. Your tax preparer can help you learn what to expect from your retirement taxes—and they might even find ways of reducing your tax burden.
The debt you carry with you could limit your ability to spend money in retirement. Reducing that debt, whether before or after retirement, seems like a simple solution—but it could take some work. If you choose to pay it off as a lump sum during retirement, it would likely reduce your monthly costs. This would also reduce the amount you have in savings, but might save you money on paying interest on the bill over time. It might be helpful to refer to your budget and assess how much you have, how much you need, and how much paying off the debt might save you.
When reducing debt before retirement, you might also need to do some calculations. For instance, if your retirement savings grows at a faster precentage rate than your debt, you might choose to put your money into savings rather than pay a bill. If you choose to do so, you could do this for every source of debt you have before retirement—mortgage, credit cards, etc.
When choosing to save rather than reduce debt, it's helpful to add that debt into your retirement budget. This way, you can more accurately estimate your retirement income—or even save enough to pay off your debt soon after retiring.
Investing your money can have many benefits over simply saving it. Money in a savings account usually either grows very slowly or not at all. Wisely-invested money can grow faster. If you're unsure how to invest or are afraid to do so on your own, that's okay! A financial advisor can help you find investments that work within your risk comfort level—just make sure to include their fees in your budget!
Need more guidance about maximizing your retirement savings?
Meet Our Contributors
Founder, Quiver Financial
Director of Retirement Services,
Director of Alternative Investments,
Advisory services offered through Quiver Financial Holdings, LLC.
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