How to Avoid Outspending Your Retirement Savings

Saving for retirement is a lot of work, but the reward is the ability to enjoy your senior years without having to worry about working. Unless, that is, you spend your retirement savings too quickly and run out of money.

To avoid a stressful retirement full of money worries, consider these steps before and during retirement.

Make sure you have enough saved for retirement

The general rule of thumb for retirement planning is that you’ll need to save enough to cover 85% of what you were spending before retirement. But that's just the starting point, depending on how you want to live during retirement. If you want to do more in retirement than you were while working (go on more trips, eat out more often, etc.) you'll need to plan accordingly. 

The easiest way to run out of retirement funds early is to never have saved enough to begin with. So no matter how far away retirement may seem, check your progress. Is your retirement on track? If you're behind schedule, can you increase your savings or do you need to change how you plan to live in retirement? Will you need to continue to work during retirement to supplement your savings?

Create and maintain a budget

A good budget is often the solution (or part of the solution) to a lot of financial challenges. That's because understanding what you owe, tracking what you spend, and separating wants from needs is essential to successful money management.

And that's never more true than in retirement, when "income" is typically locked in place, requiring you to be that much more careful about your expenses. It's especially important because retirement can change a lot of important details and if you're not prepared for those changes things can spiral quickly.

A budget isn't about constraining yourself, it's about making sure that your money is being spent in a way that best reflects your priorities and goals. A good retirement budget sets you up for safety and success throughout your golden years.

Pay off debt before retirement

Debt payments are an expense you're better off not taking into retirement. While you may be able to afford certain debts, you'll have more room in your budget and less to worry about if you make an effort to pay off any unsecured debts before hitting retirement.

Credit card debt in particular is worth paying off to save yourself from the interest charges. If you're approaching retirement and carrying unwanted debt, consider working with MMI. We offer free financial counseling 24/7, online and over the phone, to help you review your options and find the path that has you out of debt the fastest.

Avoid unplanned splurges

Retirement is exciting. It's the thing you're entire working life has been building up to. You worked hard for years so you could (hopefully) stop working and enjoy yourself.

But that excitement can be dangerous if you're not careful. It's great to go on trips, move closer to the grand kids, and take up Pickleball, but many new retirees fall into the trap of spending too much, too quickly in an attempt to catch up on all the things they couldn't do while working.

Again: you've earned the right to go have fun. The only catch is that you need to be able to afford that fun. Too often, retirees start checking items off their bucket list only to find out a few years later that they've spent too much of their retirement fund and will need to cut way, way back to make the rest stretch.

Prepare for healthcare costs

Sickness and injury happens at all stages of life, but medical issues tend to become more dire (and often more expensive) as you age. If you're not prepared, a medical emergency could potentially wipe out your retirement savings in no time.

Medicare is health care coverage for people 65 and older. For some, Medicare coverage starts automatically. For others, there are some steps you'll need to take. In either case, it's important that you understand what Medicare covers and how much it will cost you. 

Depending on your situation, you may need to purchase supplemental insurance if Medicare doesn't cover all of your needs. You want to avoid being underinsured as out-of-pocket medical expenses can quickly become more than you can afford.

Be smart about accessing your retirement funds

A lot of smart retirement planning is all about timing:

• Delaying retirement a few years may allow you to maximize the last few years of earning power, while building a stronger egg nest.
• Waiting to begin collecting Social Security can have a significant impact on the amount of benefits you receive each month.
• Setting a conservative withdrawal rate can help ensure that your money doesn't run out too quickly.

In other words, when it comes to retirement it's often better to wade in slowly and carefully, rather than dive in headfirst without a plan.

Be flexible and make changes as needed

Even the best plans don't work out. There will always be factors you can't imagine or account for, beyond simply making mistakes. As such, it's important that you review your situation regularly and adjust as needed.

• Does your budget need to be tighter?
• Are there planned expenses that you can no longer afford?
• Would you be better off downsizing to smaller, less expensive home?
• Should you consider supplementing your retirement funds with part-time work?
• Should you use a reverse mortgage to access the equity in your home?

Retirement, like life itself, doesn't tend to move in a straight line. Things will change and other things will come up, so don't be afraid to meet those changes head on.

And if you need help preparing your budget for retirement or tackling debt, we're here for you. Get started online today and see how we can help you meet your goals.