14 Tips for Managing Money in Retirement

My mother turned 65 this August, and as millions of other Americans do when they reach that age, she hung up the gloves this summer. For the record, she wasn’t a boxer. But she did work just as hard as any champion to ever enter the ring, and her long-awaited retirement is a much-deserved retreat from the workplace. 

Like most recent retirees, she’s still getting used to the idea of not having a routine paycheck. Instead, she has to survive solely off of withdrawals and required minimum distributions (RMDs) from her retirement savings. And between escalating health care costs and premiums, soaring inflation, and a several-year wait for the full Social Security benefit she’s entitled to, she isn’t so sure she can make ends meet right now.

There’s been a notable uptick in recent retirees having to unretire due to these financial pressures. However, I suspect my mom won’t be one of them since she’s likely to follow these 14 strategies to stretch her retirement savings.

Tips for Managing Money in Retirement

Whether it’s something as seemingly complex as an income source like a qualified longevity annuity contract (QLAC) or something as simple as creating and properly adhering to a household budget, there are numerous actions you can take in order to ensure your years of retirement planning isn’t squandered.

1. Make a Budget

Financial stability is important at any age, and it begins with sound personal finance habits and intelligent money management. Many retirees rely on a household budget to stay on the straight and narrow, financially speaking. 

A budget is critical to a financially healthy retirement because it shows you what your income is, what your expenses are and what amount of money you’ll need to be comfortable given those parameters. It does all this clearly and objectively. 

Specifically, a budget shows how retirement income sources — like Social Security withdrawals and RMDs from a Roth IRA or other retirement account — stand up against recurring expenses like healthcare, income taxes, utility bills, groceries, transportation, and other costs of living. 

Your budget can also help you prepare for unforeseen retirement expenses and emergencies like car troubles or nonelective medical procedures. 

Lastly, your budget helps you understand what you shouldn’t be spending your retirement savings on. If your bottom line looks too tight, perhaps it’s time to cut back on the weekly golf outings or dining out at your favorite restaurant. 

2. Cut Back on Your Expenses

You need to keep the lights on, the water running, and food in the fridge. These recurring expenses accrue, and you generally can’t avoid them. 

It’s your discretionary purchases — like entertainment, leisure activities and electronics — that often throw a wrench into what’s an otherwise well-managed retirement budget. 

This doesn’t mean you shouldn’t enjoy your post-retirement years and entirely forgo travel, dining out, or home renovations. But you should pay for them out of savings allocated specifically for longer-term goals while working to trim discretionary expenses in the short term. Otherwise, you could end up draining your retirement accounts and having to go back to work. 

Knowing how and where to save money on a tighter budget will keep you on the financial planning track you committed to decades ago, when you first opened an IRA or other retirement account. Just as it was then, your goal now is to maximize your retirement savings to live comfortably with a reduced income stream. 

Which expenses count as unnecessary? Consider: 

• Cable Television. Join the millions of Americans who have already cut the cord in favor of one or two subscription-based streaming services — saving $100 or more per month in the process.

• Dine Out Less. Don’t entirely forgo eating at your favorite restaurants, but be mindful that the average cost of a meal while dining out is $13, while the average cost of a meal prepared at home costs just $4 per person.
  
• Costly Cell Phone Plans. Numerous mobile carriers provide low-cost plans for seniors. Look at T-Mobile, which offers a variety of plans for those aged 55+.

3. Be Smart About Your Withdrawals

One simple way to stretch your retirement funds further is to manage your withdrawals intelligently. To do this, you need to calculate how much you need each year to survive, then figure out how much you can safely withdraw each year to meet those needs. Don’t forget to account for the income tax impacts of those withdrawals.

The 4% rule is a good start. If you can accrue a comfortable nest egg, you should be able to withdraw 4% annually without running out of money for 30 years.

You can also postpone a significant portion of your RMDs. Annuities — specifically qualified longevity annuity contracts or QLACs —let you delay RMDs until age 85. QLACs not only allow retirees to prolong the life of their retirement income, but they reduce the income tax burden of RMDs.

You can purchase a QLAC with the lesser of $135,000 or up to 25% of your traditional IRA or qualified retirement account. You can then defer the amount of the QLAC until an age that you determine based on your living expenses, life expectancy, and other factors. 

An annuity won’t be as important if you’ve set up a Roth IRA since those individual retirement accounts don’t require RMDs.

4. Delay Taking Social Security

More people are tapping into their Social Security at an earlier age due to stock market volatility and persistently high inflation. So it’s no surprise that — despite the maximum monthly payment being $3,345 — the average American only receives $1,614 per month in Social Security benefits. 

But most adults don’t realize that the program is inflation-proof and constantly adjusted to account for increases or decreases in the Consumer Price Index. That means delaying your Social Security benefits is a great way to boost your retirement income. The longer you  wait, the higher your payments will be. 

You can start receiving payments at age 62. However, if you wait until the full retirement age of 70, you’ll maximize that amount by being eligible for the full monthly benefit. In 2022, that’s $4,194, or $1,833 more per month than you’d receive by retiring at age 62.

5. Create Alternative Retirement Income Streams

One way of delaying your retirement account withdrawals and Social Security benefits is to take a part-time job. 

A senior-friendly part-time job can supplement your RMDs with recurring, employment-based income. It also affords you the opportunity to work in industries you’ve always had an interest in, but perhaps weren’t able to join during your career.  

Another option is to establish a passive income stream. There are numerous ways of accomplishing this, but to name a few: 

• Invest in Dividend-Paying Stocks. Shares of companies that yield dividend income historically outperform the market while paying you to hold the stock. They’re also far less volatile than their non-dividend-paying stock market counterparts. 

• Invest in Fixed-Income Funds. Also known as bond funds, these mutual funds are another income source with low risk and yields that can beat the average dividend-paying stock. Bond funds with a 100% allocation to fixed-income have a historical track record of producing a positive return 86% of the time. The average annual return is 5.33%, according to Vanguard.

• Rental Property Income. Rather than returning to work, try on the landlord hat. There are numerous companies specializing in turnkey rental properties. Despite recent rate hikes, interest rates on mortgages remain low by historical standards.

6. Downsize Your Home

I was elated when my mother retired this summer, but I was devastated when that decision was coupled with selling my childhood home. Despite my feelings, downsizing a home after retirement makes tremendous financial sense. My parents no longer require a few thousand square feet of empty nest. 

Saying goodbye to a home is never an easy task, but you can prepare by taking some simple steps. Measure your new space to determine what will (or won’t) fit. Be mindful of wants vs. needs; focus on essentials; and decide what can be sold, gifted, passed down, or donated. 

Lastly, don’t hesitate to ask for help. Your kids will want to create final memories of their childhood home, and it’s easier seeing a box of knickknacks being carried away by family than heading to Goodwill.

You won’t be alone in making this decision. Millions of your fellow retirees are doing the same right now.

7. Consider a Reverse Mortgage

If listing, showing, packing, selling, and moving seems too daunting a task, there are ways for you to tap into your home’s equity to bolster your retirement plan. A reverse mortgage is often the best choice if you own your home free and clear and don’t plan to move anytime soon.

A reverse mortgage is a special kind of mortgage loan that provides you with a lump sum payment. You’re not required to make monthly payments, which frees up funds to allocate to other areas of your budget. 

Reverse mortgages have upsides and downsides. The pros include: 

• No Fixed Terms. Reverse mortgages don’t have fixed terms, so you can reside there indefinitely. The loan doesn’t come due until move-out, death, or sale of the property. 

• You Can Remain in Your Home. Because you can remain in your home, there’s no need to downsize or minimize your possessions based on square footage. 

• Boosts Your Retirement Savings. You can liquidate the equity in your home to help increase your nest egg. This is particularly relevant if you don’t have enough retirement savings or income.

The cons include:

• Interest Grows Continuously. Reverse mortgages accrue interest. Because there are no monthly payments, the loan grows larger over time with the interest being tacked on.

• Vulnerable in a Weak Housing Market. The housing market can change at a moment’s notice. The value of your home could decrease, leaving you with less breathing room on the loan. 

• Smaller Inheritance for Your Heirs. Your heirs could see a reduced inheritance since reverse mortgages typically require the house to be sold in order to satisfy the loan. 

8. Consider Moving to a More Affordable Area

There’s a reason why everyone’s grandparents used to retire and move to Florida. Back in the 1970s and 1980s, Florida had low taxes, uncrowded cities, and lots of cheap land. 

Those days are over. Florida now has more than 20 million inhabitants, and home prices in cities like Miami and Tampa rival those in greater New York and Chicago. There are much better places for retirees to relocate in the U.S. and abroad.

That isn’t to say value can’t be found anywhere in the Sunshine State. Like any region of the country, there are bargains and there are costlier markets. Finding the most affordable places to retire isn’t a challenge, either. There’s plenty of beautiful, cheap “coastal” real estate in the Great Lakes region, and you don’t have to pay Aspen prices for mountain views in the Appalachians.

Want to see what else the world has to offer? Consider moving overseas after you retire. In Spain, on the back of a U.S. dollar that’s recently gained parity with the euro, you can buy a modest but totally livable home for less than $200,000. I’ve heard the tapas and wine aren’t bad, either. 

No matter which state or country draws your attention, you can probably make it affordable. Though as a native Floridian who definitely won’t be retiring in the Sunshine State on account of its insufferable humidity, I’d advise somewhere more temperate.

9. Pay Off Debt

I’m always baffled by people who come into money and immediately look for investment opportunities. Personal finance 101 is clear on this: You should always pay off your debt first. 

Getting rid of those monthly car payments puts another few hundred dollars in your pocket. And I don’t know anyone — retired or not — who couldn’t use an extra few hundred dollars each month.

Begin chipping away at your debt that carries the highest annual percentage rate (APR). That’s often going to be the little square piece of plastic most consumers are addicted to. The average interest rate for a credit card in the U.S. is a staggering 19.2%, according to the CFPB. 

If you follow a strict household budget, you only need to keep the credit card around for emergencies or — if you’re extremely disciplined — points, rewards, and cash-back programs. But that requires you to pay off balances immediately, or else risk accruing runaway debt that grows by nearly 20% every year. 

10. Save Money on Travel

Travel is possibly what retirees look forward to the most. But it gets expensive quickly. So use these resources to save money while traveling during your golden years: 

• AARP. The AARP offers members discounts at car rental companies, including Avis, Budget, Payless Car Rental and Zipcar; hotel discounts at Best Western, Wyndham, Hilton Hotels and others; and discounts on airfare from British Airways and Expedia.

• Airfare Discounts for Seniors. Even without an AARP membership, some airlines provide seniors a discount. Both United and Delta offer them on select flights, but they aren’t available online and you’ll have to call to find out. 

• Cruise Discounts for Seniors. With cruise lines like Carnival and Celebrity, you don’t even need to wait until full-retirement age. Both offer senior discounts to those 55 and older. 

11. Live a Healthy Lifestyle

Healthcare costs tend to increase as you get older, but it’s never too late to start living a healthy lifestyle. When you embrace healthy living, you don’t just save money that would have gone toward bad habits. You may reduce your lifetime medical expenses too. 

For example, if you’re a smoker, quitting now saves you $10 per pack and significantly reduces your risk of costly lung and cardiovascular complications. Occasionally forgoing red meat in favor of fowl, fish, or plant-based meals is similarly cost- and health-effective. 

Even moderate exercise has exponential benefits. Exercising a few times per week — as little as 150 minutes total — reduces the odds of heart disease and cancer, extending life expectancy by as much as seven years. The longer you stay healthy, the longer you’ll preserve your retirement savings — or at least avoid spending them on treatment for preventable illnesses. 

12. Save on Medical Expenses

Even if you live the healthiest lifestyle you can, your medical expenses will increase as you navigate your golden years. By age 65 and older, healthcare expenses exceed $11,000 per year, the highest you’ll experience in your lifetime.

There are numerous ways you can save on medical expenses. First, always stay in-network. By doing so, your insurance provider covers most (if not all) of your costs aside from your copay. If you go out of network, costs rise dramatically. A $22,000 medical bill can cost you $2,800 out of pocket if you remain in-network, but $13,600 if you’re out of network, according to data crunched by Small Business Majority.

Second, unless it’s a real emergency, avoid the emergency room. Even a non-life-threatening complaint can cost thousands when brought to the ER instead of a walk-in clinic, urgent care facility, or telehealth consultation with your regular medical provider. If you’re not experiencing an acute medical issue, try any of those options first.

13. Rebalance Your Portfolio

In order to ensure your retirement savings last, you need to rebalance your Roth IRA or other retirement accounts. You want to reduce your risk exposure as you age and avoid the pitfalls of volatile asset classes. 

For example, instead of holding positions in overvalued growth stocks in the tech sector that often don’t pay dividends, you can turn to the U.S. Treasury Department’s nearly risk-free Series I Savings Bonds.

I Bond yields are weighted to inflation, so they maintain their value better than savings account deposits. Between April and October 2022, I Bonds paid 9.62%, annualized — higher than the roughly 8% inflation rate during the same period. You can buy up to $10,000 in I Bonds per person at TreasuryDirect.gov, and more if you use your tax refund to buy them.

If you want to keep some stock exposure, that’s fine. But focus on dividend-paying stocks and ETFs, both of which routinely outperform the broader S&P 500. 

This includes Dividend Kings and Dividend Aristocrats — companies that have raised their dividends consecutively for 50 and 25 years, respectively. These value stocks are considered blue chips because of their low risk, high quality, and reliable performance. 

High-dividend exchange-traded funds are another option. ETFs offer a basket of stocks across a given sector or industry thereby increasing exposure while decreasing risk. 

Avoid ETFs with expense ratios above 0.75% — those management fees can erode potential gains. Fortunately, it’s easy to find high-dividend yielding ETFs with expense ratios below that, which will help your retirement savings continue to grow safely. 

14. Take Advantage of Senior Discounts

Finally, taking advantage of senior discounts helps you save money on easily overlooked things like online shopping, pharmacy items and groceries. You might not save much on individual purchases, but senior discounts add up over time.

Amazon.com offers seniors enrolled in Medicaid or other government assistance programs a discounted rate for their Prime memberships. Walgreens offers Seniors Day on the first Tuesday of each month with up to 20% savings. 

Numerous supermarkets offer senior discounts too. Fred Meyer gives seniors a break on the first Tuesday of each month, while Harris Teeter provides a 5% senior discount every Thursday.

Final Word

With inflation at historic highs, the amount of money you’ll require in order to have a comfortable retirement is growing fast. 

But there’s a lot you can do to preserve and grow your retirement savings even after you stop working. 

You can create alternative income streams. You can streamline your investment portfolio. You can even downsize your home or use a reverse mortgage to recapture some of its value.  

You’ve spent decades preparing. Now, it’s time to reap the rewards. You’ve earned it.