After saving up for years, it can be tempting to start spending big once you’re able to withdraw from your 401(k) penalty-free. But just because you can, it doesn’t mean you should. You can have fun in retirement while still managing your money responsibly to ensure it lasts. This could include a mix of careful planning, budgeting and potentially taking advantage of personal loans to cover big expenses without depleting your retirement savings all at once.
Nobody should tell you how to spend your time and money in retirement. It’s yours; you earned it! But if you’re looking for a bit of inspiration, read on to learn how you can balance managing your retirement funds while having a great time.
Make a Spending Plan
First and foremost, you must understand how your finances will look in retirement. To get an idea of how much you want to spend each month, consider your fixed expenses that stay the same each month, such as:
- Mortgage or rent
- Car payment
- Student loan payments (for yourself or a child)
- Insurance (health, homeowners and car)
- Subscriptions and memberships
From there, you can estimate your variable expenses that change each month, like utilities and groceries, to get a picture of how much you’ll need to spend on essentials.
Consider your income sources, such as retirement account withdrawals, Social Security payments, pensions and other income. Then think about when you want to access them.
You can start withdrawing money from a 401(k) or IRA at age 59 ½, but you don’t have to until you turn 73. Social Security is available starting at age 62, but if you can wait until 70, you can receive the maximum amount. You can use a Social Security calculator to help you estimate your benefit.
When you’re developing a spending plan, make sure you’re thinking long-term. Elder care is often expensive, so it’s important to keep in mind that what you spend on essentials and enjoyment now is money you won’t have to cover medical bills and elder care later. If you’re conservative in your spending now, you will have more flexibility later. A common rule of thumb is to withdraw 4% of your retirement account balance in the first year of retirement, and then withdraw the same amount, adjusted for inflation, each year for the next 30 years.
What to Do in Retirement
With a spending plan in place, you’ll have a better idea of what you can comfortably afford to do in retirement. Here are some ideas.
1. Make a Bucket List
Always wanted to skydive? Hike Mt. Kilimanjaro? Learn the guitar? Grow your own tomatoes? Retirement is a great time to start checking items off your bucket list—even if you never had one until now.
Some items may require financial planning, but others don’t have to be big expenses. Make a list and see what fits in your budget, what you might want to splurge on early in retirement and what you might have to save a little longer for.
2. Get a New Hobby
Retirement is a great time to pick up a new hobby, learn a new skill or enjoy a new activity. But some hobbies are more expensive than others. If you want to play golf four times every week and get new clubs every few years, you’ll have to budget for that. If you’re more interested in becoming a better cook or learning to speak Spanish, you likely won’t have to spend as much.
3. Start a business
For some people, retirement may get a little boring. If that’s the case, you might feel like it’s a good time to pursue a business idea you’ve always dreamed about. Of course, starting a business is a lot of hard work, but it may feel well worth it if it’s a labor of love.
4. Travel the world
Your time tends to be more flexible when you’re retired, making it easier to take long vacations and explore the world. Traveling is expensive, but if you travel in the off-season, you could look for deals that help you maximize your budget.
5. Invest in your health
Staying active in retirement can help reduce your risk of disease and keep you feeling stronger as you age. You can take morning walks or go on hiking trips for budget-friendly exercise or consider joining a gym or other fitness classes. Or maybe you’re motivated to join a seniors’ pickleball league. A good spending plan can help you prioritize a healthy lifestyle by helping you access athletic facilities and buy healthier food.
Get your retirement plan in place
Nobody can tell you how to spend your retirement, but you might find some goals are hard to meet without proper financial planning. Before you retire, take the time to think about what you want your later years to look like and start planning to make sure you have the funds to accomplish those goals.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of bioscops.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
