Last Updated on July 13, 2022 by Atiqa Chauhdary
We spend decades of our lives saving for retirement and hoping that we have enough money to get us through our golden years. And while planning for retirement is crucial, knowing how to manage your money in retirement is equally as important.
From where to invest to how to take withdrawals from your retirement accounts, here are seven ways to manage your money after you retire.
Table of Contents
1. Keep a Close Eye on Your Investments
As a retiree, preserving the money you have is more important than trying to make your money grow more.
When you’re young you can afford to make risky investments because there’s more time to endure market dips and rebounds. The older you get, the more important it is to safeguard your existing money in stable accounts.
To protect yourself from market crashes and fluctuations, consider shifting some of your funds out of risky stock investments and into safer investment vehicles, such as bonds.
2. Be Aware of Required Minimum Distributions
As soon as you hit age 72, the IRS requires that you start taking withdrawals from defined contribution plans such as IRAs, and can my 401k be garnished? If those accounts were funded with tax-deductible income, you’ll have to pay taxes on them when you make withdrawals.
Some retirees would prefer not to take those distributions so they don’t have to pay the taxes. That is not an option.
There are penalties for not taking RMDs, so make sure you take those withdrawals as required.
3. Determine Your Safe Withdrawal Rate
No matter how much money you have saved for retirement, the goal is to make it last until your final days. Before you make any withdrawals from your retirement accounts, calculate your safe withdrawal rate.
Your safe withdrawal rate is the % of your savings that you can withdraw every year and still have enough to last through your lifetime, based on your life expectancy and any health conditions you may have.
To calculate your safe withdrawal rate, divide your expected annual withdrawal amount by the total amount you have saved. While there is no “exact” withdrawal rate that works for everyone, for most retirees, 3-4% is the sweet spot.
4. Create a Fixed Spending Plan
In addition to creating a budget, create a spending plan to account for all the fun things you want to do in retirement. Doing this at the start of your retirement can help you limit your spending and help to ensure that you’ll have some fun money to play with for the duration of your days.
5. Wait as Long as You Can To Start Collecting Social Security
It can be tempting to want to start collecting Social Security benefits as soon as you hit age 62. But if you wait until you hit your full retirement age, you can collect more each month from SSA.
The more you collect from the Social Security Administration each month, the more cash flow you’ll have and the bigger your budget and spending plan can be.
6. Consider Reducing Your Insurance Coverage
Certain insurance policies, such as cash value life insurance plans and disability insurance plans, are two affordable ways to safeguard your assets, guarantee your future income, and provide financial protection for yourself and your family.
If you’re only a year or two away from retirement, consider dropping your disability insurance. Because it’s designed to protect future income, it’s not necessary if there’s very little future income to be earned.
As for life insurance, if your children are grown and financially independent, you may want to consider lowering your insurance coverage or only maintaining a final expense policy.
The main purpose of life insurance is to provide financial protection for your dependents when you die. If no one is reliant on you financially, you can save money by lowering your life insurance coverage and lowering your monthly premiums.
7. Take Advantage of Credit Card Rewards
There will always be bills to pay, and while it may seem logical to make payments from your checking account, you can save a bit of money by paying for your bills with a credit card that gives cash back rewards.
Just be sure to pay off that credit card right away, otherwise interest will accrue and those bills will end up costing you even more.
Before you can worry about how to manage your money after you retire you need to make sure that you have money saved when you retire. No matter what stage you’re at in your career, it’s never too early or too late to start saving and planning for the future.