Many active adults preparing for retirement are excited about the new opportunities it brings—pursuing new hobbies, spending more time with family, and relaxing. But, many retirees are also concerned about their financial stability, wondering “how long will my retirement savings last?”
Retirees face financial challenges every year, including taxes, health care expenses, rising inflation, and sometimes the possibility of running out of savings. The best way to tackle these issues is to plan retirement as far in advance as possible. Financial well-being brings a sense of security and comfort that enables retirees to enjoy an active physical and social lifestyle.
This guide, designed for active adults preparing for retirement as well as retirees, summarizes key approaches to help make retirement savings last. With strategies such as maximizing income, reducing expenses, and using resources like financial advisors, active adults can prepare for a prosperous retirement.
Maximizing Income Streams
One of the best ways to make money last during retirement is to make more of it. Of course, everyone wishes they had more money, but retirees have access to unique streams of income. Increasing your income during retirement is often a process that starts long before retirement happens, and taking certain steps can optimize the amount you receive.
Social Security
One of the most well-known forms of retirement income is Social Security. Many myths surround Social Security benefits, such as the misconception that workers pay into their benefits for their entire life and then receive them when they retire. Actually, workers pay for the benefits of existing retirees, and when they retire, the current workforce pays for theirs.
Another myth is that Social Security benefits cannot be received until 65. In fact, some retirees can receive them as early as 62. Retirees can also maximize their benefits by waiting until up to 70 to apply for them. This means that the longer you wait to apply for Social Security benefits, the more you will receive.
According to the National Council on Aging, retirees who already collect Social Security can seek to maximize their monthly benefits by tracking their annual cost of living adjustments, seeking a benefits adjustment, or continuing work while collecting Social Security.
Retirement Accounts
Most retirees should also be familiar with retirement savings accounts in some capacity. Retirement accounts like 401(k)s and IRAs allow workers to invest money in a special retirement savings account that often comes with benefits like tax deductions and employer matching. To maximize retirement accounts, active adults should be aware of catch-up contributions.
There are limits to how much you can contribute to 401(s) and IRAs. But when you turn 50, that limit increases. Taking advantage of catch-up contributions can increase your overall retirement savings.
Pensions, Annuities, and Rental Income
The most efficient way to maximize income from other forms of retirement income is to make them work in tandem with all your other benefits and accounts. There’s no one-size-fits-all strategy since everyone has a different retirement budget and lifestyle.
Ideally, all the different kinds of retirement income should be components of your larger financial security plan. For example, utilizing annuities may provide a steady income while you wait for Social Security benefits to increase. Rental income should cushion what retirees bring in monthly, but not so much that it lowers or eliminates other retirement benefits with income restrictions. Pensions are a sound way to save money for retirement, but maximizing a pension may not be the most sound strategy when tax-deductible accounts like 401(k)s exist.
The fine details of the multitude of retirement incomes can easily become complex and disorganized. We recommend meeting with a trusted financial advisor to organize all these avenues of income so that they help one another out—and not the other way around.
Part-Time Work or Consulting Opportunities
Another way to maximize retirement income is to continue to work. Whether retirees wish to make more income, pursue a new interesting career, or simply meet people while earning money, getting a job during retirement may not be as uncommon as you might think. Active adults 65+ often pursue jobs in fields such as accounting, teaching, travel, retail sales, and more.
Many retirees turn to consulting work to earn extra cash. This path makes for an excellent income opportunity for retirees wishing to leverage their hard-earned skills and expertise.
A common misconception is that retirees will not receive their Social Security benefits or other types of retirement income if they continue to work or find a new part-time job during retirement. The truth lies in the fact that retirees can still work and receive Social Security benefits, but they may reduce those benefits if an outside income threshold is met.
Reducing Expenses
Active adults looking to stretch their dollar should consider saving their money whenever and wherever they can. From choosing to buy a used vehicle to buying generic brands instead of name brands, every little bit of savings adds up in due time. One effective way to save money is by creating and sticking to a budget. Keeping track of expenditures on essentials and non-essentials alike can better allow retirees to maximize the effectiveness of their income.
Downsizing
Another major way retirees reduce spending is by downsizing to a smaller home or choosing to relocate to a more affordable area. Not only does downsizing usually lead to lower home and utility costs, but it also eliminates any unwanted clutter in your living space. Choosing to live in a less pricey area also allows homeowners to save on their mortgage payments and property taxes.
Move Into a 55+ Community
Active adults have a unique perk for getting the best bang for their buck when it comes to finding a new home, and that’s the ability to move into an age-restricted community. Homes in 55+ communities incorporate ideal features for the active adult lifestyle, and most communities have floor plan options ideal for those looking to downsize. The advantages also extend past the home, with many 55+ communities offering low-maintenance benefits like included lawn care as well as amenities like clubhouses, swimming pools, sports courts, and theatres.
Health Care Costs
Though it may not be a fun topic to discuss, active adults must consider health care and its costs as an essential part of their retirement. While some may have private insurance, many choose to enroll in Medicare to save money. If Medicare doesn’t cover the proper costs for treatment or medications, you can also consider supplemental insurance or gap insurance that works in tandem with Medicare to cover certain areas.
Another way active adults approach health care costs is by investing in a Health Savings Account (HSA). HSAs allow retirees to put money in a special account on a pre-tax basis that can be used on qualified medical costs. This type of savings account lessens and sometimes eliminates out-of-pocket expenses when combined with medical insurance.
Investing Wisely
Retirees can grow their wealth over time by investing a portion of their income into risk-involved sources like stocks, bonds, and financial firms. Finding a trusted financial advisor to help navigate investments is always a good choice, especially when it comes to managing retirement funds.
Many investments come with inherent risk that allows for the chance to lose money as well as grow it. Finding a balanced investment right for your individual needs and budget will help reduce risk and maximize profit. Many financial advisers would likely suggest putting money into several different and diverse options. Diversifying investments helps maintain financial stability and ensures steady overall growth.
Some investments qualify as low-risk yet still have relatively high returns, such as municipal bonds, dividend-paying stocks, and high-yield savings accounts. Different advantages and disadvantages exist for all of these options, but investors can expect to see at least some growth without the risk of getting burned.
Tax Strategies
Taxes are an expense active adults won’t be able to escape in retirement. Which taxes retirees must pay and how much they will cost varies greatly from state to state and even from city to city. Researching and comparing the tax environments for potential retirement destinations could save you a significant amount of money.
Understanding the limits of tax brackets and adjusting your income accordingly could help save money on income taxes. Also, investing what you can into accounts like 401(k)s can help prevent those amounts from being taxed at all. Another large tax expenditure can be property taxes, and choosing an area with lower property taxes could potentially save hundreds or even thousands of dollars every year.
Senior Exemptions
Retirees often have access to special tax deductions and credits intended to ease the financial burden. Most states offer some sort of property tax exemption or credit for seniors, such as the Senior Citizen Homestead Exemption which can deduct up to $50,000 in property taxes depending on the state. Other states may have a Senior Citizen Assessment Freeze Exemption, which locks in the assessed value of a home so that retirees don’t need to pay higher property taxes as housing prices increase. Be sure to take a look at what your retirement destination may have to offer!
Resources for Financial Guidance
Even for those with financial experience, navigating retirement can be challenging. Luckily, retirees can find many resources at their disposal to make their money work for them.
Trusting the expertise of a financial advisor is the right idea when it comes to managing retirement finances. From advice on how to maximize streams of income to guidance on how and where to invest your wealth, a financial advisor can offer expert advice. Simply asking a financial advisor “how long will my retirement savings last?” should prompt a discussion on how to improve your financial stability.
Other than finding an advisor, several online tools exist to help retirees manage their money. Simple and effective tools like NerdWallet’s Retirement Calculator can help determine how much will be needed to live any lifestyle during retirement. Additionally, retirees can utilize a variety of community and government programs aimed at helping with financial burdens, such as the Department of Labor’s Senior Community Service Employment Program which trains active adults in new trades.
Embrace Your Next Chapter
Retirement looks different for every individual, and those differences extend to finances. Reducing expenses by downsizing to a 55+ community, prioritizing spending on essentials, and minimizing tax payments can help make money last as long as possible. Seeking the help of a financial advisor is highly recommended to help retirees organize and optimize their retirement savings and income.
Remember, taking steps to secure enough money for retirement should happen long before retirement comes. Active adults should begin saving and planning for retirement as soon as possible to ensure money problems don’t disrupt a time that should be spent exploring and enjoying life. With careful planning and some effort, a fulfilling and worry-free retirement can be within reach, allowing you to truly embrace your next chapter!
