Living responsibly within your means in retirement while still getting the most enjoyment possible out of your life can be a difficult balancing act for many retirees.
While you live with some level of financial restraint throughout your decades spent in the workforce, you’re also able to live somewhat beyond your means when necessary thanks to how easy it is to take on debt that can be paid down slowly over many years.
Add in the possibility of promotions and wage hikes coming your way in the future, or even the ability to take on additional jobs if necessary, and your financial situation generally feels more fluid and adaptable than rigid.
That all changes after retirement, when your finances become mostly set in stone. Sure, you could probably pick up some work to get by, which is easier than ever for retirees to find in the gig economy, where your experience and skills are in global demand. Having to work during your retirement also isn’t much of a retirement though and won’t be a possibility for everyone, so let’s assume that’s not really an option to fall back on.
What’s a retiree with a limited budget to do then? The possibilities are many and becoming a miser doesn’t have to be one of them says Teresa Wolande, a retired insurance and risk management professional who now helps retired women adjust to life after work through her involvement in the Women’s Forum in Naples, Florida.
Teresa shares her thoughts on several key financial elements of retirement below and how they can be used to the advantage of retirees.
Estimate Your Future Healthcare Costs and Life Expectancy
A huge variable in your retirement plans is centered around your health and estimated life expectancy. Despite the fact that many retirees will need to pay for healthcare services out of their nest egg at some point, just 25% of them estimate the potential impact of healthcare costs on their savings according to a Voya Financial study.
Estimating healthcare costs requires an honest assessment of your own health and your family history, which will reveal the likelihood of you becoming afflicted with various conditions. 23andMe is a great resource that will uncover your genetic profile and health predispositions. However, be careful of services like this. The reason you should be wary is that later on they can cause issues elsewhere, such as with life and health insurance.
Life expectancy can also be estimated through various calculators available through companies like Sun Life. They will consider your body size, smoking and drinking history, activity levels, diet, and stress levels, among other things. Average life expectancy in the U.S is currently just under 79 years.
How Much Risk Can Your Investment Portfolio Handle?
Retirees are generally advised to transition their investment portfolios from high growth (and likewise, high-risk), to one with lower risk but also lower growth potential. It’s certainly not worth risking your nest egg on risky stocks at this stage in the game, when there’s little chance of recovering from a devastating blow. That said, Teresa Wolande states retirees with comfortable budgets that have some room for downsizing if worse comes to worse can afford to remain more aggressive with their investments if they desire. It all comes down to your appetite for risk and whether you’re satisfied with your retirement lifestyle or would like to get even more out of it.
Maintain A Strong Cash Reserve
Speaking of investments, having to sell them immediately because you need the cash, regardless of their current value, is a recipe for disaster. The market generally trends up given enough time, but short-term pullbacks and drops are also commonplace. Teresa Wolande recommends maintaining a cash reserve that will get you by for at least a year so you can sell off investments when the timing looks good, maximizing their returns.
How Much Money do Your Kids Really Need?
Many retirees become overly fixated on leaving as much money for their children and/or grandchildren as possible and may feel guilty about setting themselves up for a nice retirement at the “cost” of their descendants’ future wealth. It doesn’t help that those descendants often use gentle or not-so-gentle prodding to push that narrative.
As a mother herself, Teresa Wolande is extremely cognizant of the legacy she will leave behind for her children. However, she also doesn’t believe it’s a parent’s duty to forsake their own pursuits and happiness later in life for the sake of leaving their children the most money they possibly can. This is especially true if your children are already successful, self-sufficient adults.
Teresa Wolande additionally notes that some of the wealthiest individuals in the world, including Mark Zuckerberg (News - Alert) and Warren Buffett, plan to leave only minimal inheritances to their children, with the rest of their vast fortunes being donated to charity.
