Most people plan how much they will save for retirement, not how they will spend it.
Without a clear spending plan, savings may dry up sooner than expected, even if funds are sufficient. Creating a retirement spending plan can help retirees balance lifestyle goals with long-term financial security, ensuring their money lasts through every stage of retirement.
Financial experts say the strongest plans consider necessities like housing and health care, leave room for flexibility and are updated regularly.
Here are six smart tips for turning your savings into a spending plan that really works.
Before crunching numbers, retirees should first understand how they want to live. Questions like “Where will I live?” and “How do I want to spend my days?” Help clarify priorities before creating a budget.
“A strong retirement spending plan starts to align your lifestyle goals with your financial reality,” said Tyler End, co-founder and CEO of Retireable. “Many people rush toward retirement without taking the time to define the lifestyle they really want. Once you have clarity on those lifestyle goals, you can build your financial plan around them.”
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One of the biggest risks retirees overlook is longevity. Many people plan as if they only live to be in their 80s. However, medical advances mean that many retirees are now 90 or older.
“Longevity is also a risk that people don’t often think about,” said Julie Beckham, vice president and financial education expert at Rockland Trust. “For example, as you live longer, your retirement income must last longer.”
Creating a retirement plan that assumes a longer life can help ensure that savings don’t fall short. Strategies such as deferring Social Security or maintaining modest investment growth can make income durable.
Medical expenses can quickly derail even the best retirement plans. Since Medicare does not cover assisted living or nursing home care, retirees are encouraged to plan by setting aside funds or exploring long-term care insurance.
Evan Farr, a certified elder law attorney, said many people mistakenly believe they will remain healthy throughout their lives, but only about 30 percent believe this. The other 70 percent should build flexibility into their retirement budgets and prepare for the potential costs of ongoing or long-term retirement.
Retirement spending plans work best when income is divided into clear categories. Experts recommend breaking down your income so that basic expenses like housing, food and utilities are paid first, followed by discretionary expenses like travel and hobbies.
