SPENDING IN RETIREMENT: IT’S ALL ABOUT BALANCE

You've made it. Retirement. Throughout your life, you may have planned carefully and focused on retirement saving to ensure you can live the life you want. However, many retirees find it difficult to switch from a saving mindset to spending in retirement. While it's important to be careful with your retirement savings, being too careful with your retirement income and retirement expenses has its own downsides.

It's impractical to deny yourself the senior lifestyle pleasures that you're able to afford – such as a world cruise, a big-screen television or contributing to your grandkids' college expenses. After years of diligent saving and building up your retirement accounts, it's time to enjoy the fruits of your labor. We've put together a few ways to find a balance between overspending and over-saving so you can manage your living expenses effectively and live your retirement life to the fullest.

5 TIPS FOR SPENDING MONEY IN RETIREMENT

1. Decide what your retirement will look like

Think about how you're currently spending your days in retirement and analyze the kind of retirement lifestyle you want going forward. Consider your retirement income needs and the financial resources available to you, including your Social Security benefits and any 401k and Individual Retirement Arrangement distributions. You need to balance discretionary expenses with essential expenses such as housing, food, utilities, transportation, clothing, insurance and health care. Having a clear retirement plan and understanding your retirement budget can help you manage your living expenses effectively.

2. Try it before you buy it

Looking to spend your retirement years in a different area or state? Before you commit your retirement funds to purchasing a new home, consider renting a house for a year. This approach can help you gauge whether the new location meets your retirement lifestyle goals and fits within your retirement budget. See whether living there meets your expectations regarding living expenses, climate and proximity to family or medical facilities. It's easy to buy, but selling is difficult, time-consuming and can impact your retirement savings due to expenses – so take your time.

3. Keep track of your spending

Track elective costs and the impact of your new lifestyle on your spending patterns. By recording your expenses in your first year of retirement – including discretionary expenses and essential expenses – you can see how much money you're really spending each month. You can then compare that to your monthly income, including Social Security income and withdrawals from your retirement accounts, to see whether your spending in retirement is sustainable. You might discover that you can actually increase your spending rate and enjoy a more comfortable retirement!

4. Plan ahead for the inevitable

Plan for large retirement expenses such as home renovations and health care. Each of these can be six-figure costs impacting your retirement savings and retirement income strategy. According to a 2021 survey, the projected lifetime cost of care for an average 65-year-old couple is $683,306 in 2022. Planning for these costs – including potential long-term care – is essential to ensure your retirement funds can support your desired lifestyle. By doing so, you may discover that you can still spend more money in retirement than anticipated, enjoying yourself now while having confidence that your future needs are covered.

5. Make inheritance decisions

Decide how you feel about inheritance and your retirement plan. How much of your current assets, including your retirement accounts and investments, do you want to leave to your loved ones? Some retirees preserve their entire net worth for their family, prioritizing their financial legacy. Others arrange for their loved ones to get the remaining assets after their own priorities – such as achieving their retirement goals and enjoying their retirement lifestyle – have been met during their lifetime. Your outlook affects how much money you're willing and able to spend on yourself. Effective financial planning can help you balance your desire to provide for your heirs with your own need for a comfortable retirement – and we can often offer strategies that may even let you have it both ways.

THE SAVE-TO-SPEND SWITCH

One reason so many retirees scrimp is because they fear that retirement will cost them a lot of money and they worry about exhausting their retirement savings.

Retirees are often overly cautious because retirement is new to them. Uncertain of what lies ahead, yet knowing that large health care costs and long-term care expenses are likely, retirees are more apt to hoard than squander their retirement funds. Concerns about outliving their retirement income, potential fluctuations in investment management and the absence of a guaranteed income can make spending even more daunting. But now's the time to enjoy – within reason – the money you've worked so hard to earn during your working years. If you're like many, this mindset might be difficult to implement. Here are a few small ways you can start to indulge in your personal expenses without breaking the bank or jeopardizing your financial planning.

LET LOOSE – JUST A LITTLE!

• Stop reading restaurant menus right to left. Go ahead and order the Kobe beef if you like! Enjoying fine dining can enhance your retirement lifestyle and make your retirement years more enjoyable.
• Upgrade. Book a hotel room with a better view or choose a nicer hotel when you travel. Spending a bit more can create memorable experiences without significantly impacting your retirement budget.
• Go to Broadway shows instead of movie theaters. Indulging in cultural events can enrich your life and is a rewarding way to use your retirement income.
• Get new cars every four years instead of every 10. Driving a reliable and comfortable vehicle can improve your daily life and is a practical use of your retirement savings.
• Upgrade to first class on a long flight. Increased comfort can make travel more enjoyable during your retirement years.

However, if those things feel wasteful, don't do them. If you like your car and it's safe and reliable, there's no reason to buy a new one. But if you're saying to yourself, "This couch is uncomfortable," replace it. Use your money to lead the life you want to live, balancing your spending patterns with your financial goals.

BENEFACTOR BENEFITS

Worried you'll still leave behind a significant amount of money, but don't know what to do with it? You can always donate it to charity, which can also be a part of your retirement and estate planning strategy. Start by consulting with your financial advisor and contacting your chosen charity's planned giving department, where full-time professionals work with benefactors. Many of these departments can:

• Facilitate your donations
• Show you how to donate assets (such as stocks or real estate) to help reduce capital gains taxes while getting potential tax deductions for your donation
• Set up a charitable gift annuity that can give you a guaranteed income stream for life, and the charity of your choosing will get the balance upon your death
• Help ensure your will leaves money to the charity

If you explore this option, you might discover that you gain more joy from supporting community organizations than spending money on luxury items for yourself. Incorporating charitable giving into your retirement income strategy can also provide tax benefits and align with your personal values. Or perhaps you'll do a bit of both!

GET YOUR SPENDING IN RETIREMENT JUST RIGHT

You've worked hard for your retirement funds, and it's common to worry whether they'll last your entire life. However, there is a way to find a balance between overspending and denying yourself enjoyment. Working with a professional advisor can help you create a retirement income strategy tailored to your needs. Talk to an Edelman Financial Engines financial advisor today to discuss how you can find your own unique balance, designing a comfortable retirement that aligns with both your retirement goals and income needs.