So much financial advice is centered on building up your nest egg for retirement, but it feels like so little is focused on helping you manage that money, whether you’re retiring early or on schedule. But properly managing your money in retirement is critical to ensuring that your nest egg is able to see you through your golden years without forcing you to scrimp or even un-retire.
Here are the most important things to consider when it comes to managing your money after you retire.
Don’t outlive your money
The key issue for managing your money in retirement is outliving your income. You’ll need enough income so you can avoid having to re-enter the workforce later on or otherwise do something drastic to meet your basic needs. That takes careful planning, even if you do have a substantial amount of money when you retire. You cannot be too careful about this concern.
The challenge is how to manage money in retirement: figuring out how to withdraw income from your investment portfolio to support you in retirement today, while still allowing for growth to supplement your income down the road.
Plus, if you’re retiring early, you’ll need to be sure you have readily available assets to tap, not just those in retirement accounts such as an IRA or 401(k). Many tax-advantaged retirement accounts won’t let you take withdrawals (at least not without a penalty) until you hit age 59 ½.
So if you’re retiring early, you’ll need to bridge the gap between when you retire and when you can actually begin tapping retirement funds and Social Security, which you can access as early as age 62, though you’ll receive a lower monthly benefit check then. In addition, you’ll need to consider your healthcare costs, since you won’t be able to access Medicare until age 65.
Add up all those issues, and it can be tough to retire – but careful planning will help.
5 steps for managing your money in retirement
As you’re planning for your retirement, you’ll need to forge ahead as best you can. You won’t have the safety of a job to bolster your finances, so that means every financial move should be carefully calibrated to ensure that you’re protecting your future.
1. Determine your budget
The amount that you spend is absolutely critical to how long your money will last. If you have Ferrari tastes, you won’t go far on a Ford budget. First off, it’s important to know how much you’ll spend in retirement, so you can work your budget around to meet those needs and wants: