The following article is a guest post from Brittany Fisher over at Financially Well.
As retirement age draws near, it is normal to start worrying about money. Will you be able to live on your retirement income? Have you saved enough? What sacrifices will you have to make?
It’s a smart idea to think about these things — ignoring them is the most sure-fire way of ensuring you run out of money. But managing your money in retirement doesn’t have to be a stressful experience. By focusing on these four key areas, you can construct an effective and reliable financial plan for your retirement.
Savings
First of all, you need to take a realistic look at your savings. The target number that’s most often thrown around is $1 million, but according to experts at the AARP, the actual figure will depend on various factors. Your lifestyle, where you live, and your health will all influence your expenses, and interest rates will affect how much money your savings generate.
The key is to just keep saving. No matter how little you have now, the more you save, the more compound interest will help you out. If you are still a long way off from a comfortable nest egg, you may want to consider downsizing to a smaller home. This is especially relevant if you intend to age in place, as it may be time to consider moving to a more senior-friendly place.
Budget
All seniors should have a budget during retirement in order to stay on top of their expenses. There is no one correct way to budget — instead, there are various budgeting methods, each with their own pros and cons. The 50/20/30 system is very popular, in which you allocate 50% of your income to your needs (housing, food, bills, etc.), 20% to your savings, and 30% to your wants.
Then, of course, there’s budgeting for things like travel. Many people spend years looking forward to traveling during their retirement. Just because you’re on a budget doesn’t mean you can’t do this. You will just need to budget for your travel plans (The Motley Fool has an excellent guide to help you). Identify how much money you can afford to set aside for travel, spend time correctly pricing your ideal trips, and prioritize the ones that require more energy.
Health Insurance
As you grow older, chances are health insurance is going to play a more important part in your money management. That’s why it’s important to pay careful attention to your coverage. Medicare may be an incredible resource, but there are big gaps in its provision that can cost you more in the long run. That’s why you should also consider looking at Medicare Advantage plans, which are run by private insurers and offer additional coverage. For instance, plans offered by Aetna cover things like vision care, dental care, and prescriptions, which Original Medicare does not.
Remember that most health insurance does not cover long-term care, so you will either have to purchase separate long-term care insurance or plan additional savings for these expenses. You can find out the average costs of long-term care in your region using this tool.
Extra Income
Retirement doesn’t necessarily have to mean a fixed income. If you are still able and willing to work, the internet is a great resource to find gig-based jobs that allow you to make money without committing to a full-time role. These range from freelance writing to pet sitting, caretaking, or driving.
If you are done working for good, don’t worry. There are many ways to generate passive income or money that you don’t actively work for. This can range from various forms of investing to renting out extra space in your house. What you do with this extra money is up to you. It could go straight to your savings, it could be used to cover your health costs, or it could become your fun and travel fund.
Of course, these factors are all strongly interlinked. Managing your money during retirement is a matter of finding the perfect balance between maintaining a healthy savings account, sticking to a defined budget, planning for health costs, and bringing in extra income where possible. This may seem stressful, but it is actually the best way to minimize money stress. The more you focus on managing your money effectively, the less you will have to worry about money problems.
For additional retirement tips visit our retirement resource page.