Don't Outlive Your Retirement Savings - Five Ways to Help You Avoid It from Happening to You

Retirement comes with a lot of perks. It gives us more opportunities to travel, start a new career, or explore entrepreneurial ventures. Above all, leaving behind the work grind enables retirees to sleep, exercise, and enjoy life more, resulting in a much healthier lifestyle.

However, retirement has its downsides, especially for older adults. After retiring, many retirees find that their cost of living takes a bigger bite out of their nest egg than when working. One reason for this is the current inflation, which causes most prices of components of the consumer basket to be consistently on the rise. 

The Consumer Price Index (CPI) for All Urban Consumers rose 6% over the last year from February 2022 to February 2023. The good news is that there are ways retirees can ensure they won't outlive their retirement savings. 

Don't Use Savings for Purposes Unrelated to Retirement

Consistent withdrawal of retirement savings to cover non-essential expenses is one of the common mistakes of the elderly. While traveling and having a good time are common good sides of retirement, doing them too much and carelessly can easily drain retirement savings. 

Specifically, retired seniors should avoid withdrawing and using funds from 401(k) and individual retirement accounts (IRA) unless necessary. As much as possible, don't use them to pay off other family members' debt, such as grandchildren's student loans and children's credit cards. 

Ideally, retirement savings should be used for basic needs and potential medical and long-term health care costs after retirement. However, using personal savings for long-term health care will dramatically reduce your retirement income. People often add a Long-Term Care Insurance policy to provide them with guaranteed tax-free funds to pay for care without affecting their retirement savings and income. 

For older adults who aren't yet turning 60, seeking professional help is advised before opting for the fad "cashing out before age 59½.." Professionals can help avoid penalties and income tax that may come with doing so. 

Professionals can also help create a budget and set up an emergency fund. This way, when an unexpected expense occurs, retirees don't have to wait for months until the next paycheck arrives but rather have access to immediate funds.  

Take Advantage of Tax Breaks

Instead of cashing out retirement savings for non-essentials, seniors may leverage tax breaks specifically designed for them. Before it's too late, they should maximize these benefits and take advantage of tax-efficient retirement investing schemes. Take IRA as an example.

While it's typically used with a 401k, IRA can be used independently. It's advised to ask a financial advisor who can help seniors maximize their benefits and minimize tax liabilities on withdrawals over time. 

Money within a Health Savings Account grows tax-deferred and remains tax-free if the funds are used to pay for qualified health and medical expenses, including Long-Term Care Insurance premiums.

Own A House 

The equity that comes with property ownership is very advantageous, especially in today's global economic fluctuations. Hence, consider a home purchase if you have enough funds and can pay off the monthly mortgage. In 30 years or so, this equity can be used as a retirement asset.

For seniors who own their house, it's financially wise not to sell the home until they're ready to downsize. This can save more money each month on rent or mortgage payments that they could otherwise add toward their retirement savings. 

Additionally, they can sell it for more than they've invested in it or rent it out to have another means of retirement income. Either way, their profit can enable them to purchase another home or invest elsewhere. 

On the other hand, renting a home increases their retirement cost. It may cost seniors a lot since rental and other real estate properties increase yearly. In covering the rising cost of rental property ownership, rents are expected to rise from 5% to 10% annually. 

According to a Federal Reserve Bank of Dallas report, year-over-year rental price growth will rise from 5.8%, as of June 2022, to 8.4% as of May 2023. 

Start a Business 

Despite making a startup is usually the least likely thing retirees to do, many of them still take the business startup plunge for a reason. They either want to fulfill a dream of being their own boss or need extra income to supplement savings and keep up with inflation.

When raising capital, retirement savings should be the last resort. Remember that they should be used in meeting basic needs and maintaining a lifestyle for what could be a very long retirement. Alternatively, consider selling off the least important yet valuable assets, such as paintings, precious metals, stocks, or bonds. 

If no valuable assets are available to sell, taking out loans from financial institutions can help. It's not always financially risky to borrow money after retirement, as long as there's a return on investment. 

Hesitancy in borrowing funds during retirement is normal. After all, aside from the idea that it requires a financial commitment, the last thing retirees want is to mismanage their retirement funds. However, taking out loans can be very sustainable and profitable with the right approach and proper research. 

One helpful tip when looking for capital is opting for local lenders. For instance, if you live in the south, look for Florida loan. Since they're from the same area, they're more receptive to offers and personalized services. They also have products tailored to retirees' and seniors' needs and financial capability, with less stringent approval and lower interest rates. 

Live Within Your Means 

Being financially responsible is essential in retirement, especially since most retirees are on a fixed income. Seniors must live within their means to have enough money to cover basic needs and other financial priorities.

Here are a few ideas to help you, or a loved one, live with their means:

1. Create a budget: Start by identifying all sources of income and expenses, and create a budget that aligns with their income. It's essential to prioritize essential expenses such as housing, food, and medical care.
2. Track spending: Keep track of all expenses to identify where their money is going, and identify areas where they can cut back on spending, such as dining out or subscription services.
3. Seek out discounts and benefits: Many businesses offer discounts for seniors, such as reduced fares for public transportation or discounted rates for entertainment and activities.
4. Manage debt: Older adults should prioritize paying off high-interest debt, such as credit card balances, and avoid taking on new debt unless necessary.
5. Consider downsizing: Downsizing to a smaller home or apartment can significantly reduce housing costs and provide additional benefits, such as reduced maintenance and utility costs.

Final Thoughts

Financial planning is essential even in retirement. If at all possible, start planning before retiring. Assess your personal finance goals and assets and factor in the potential costs of retirement living, including health care, long-term care, and housing needs. 

Nonetheless, don't solely focus on optimizing income, investments, and giving. Life is for the living, so enjoy a vibrant, healthy, and connected life and invest in your well-being.