Budgeting in Retirement

When you first retire is when you’ll often see the biggest changes to your budget and spending patterns. You’ll no longer be cashing the regular paycheck, unless you have a pension which is becoming more rare. Not only will you need a plan to manage your income during retirement, including deciding when to start claiming Social Security benefits, you’ll really need to plan to manage your expenses. You might also lose employer-sponsored health insurance, so make sure to plan for how you, your spouse, and any dependents will get coverage if they are on your policy. If you or your spouse won’t be old enough to enroll in Medicare yet, you’ll likely need to find a private health insurance solution. In some States there are numerous options, and in others there are more limited options. Do some brief research to find which options are available to you.

The big temptation is to go on a spending and shopping spree at this early phase in retirement. You'll typically have a lot more free time and probably a lot of pent-up wants that you’ve been delaying while diligently saving. You might want to buy that sports car you’ve always dreamed of, take an extended vacation or cruise, go to cooking school, or play a lot more golf. You might want to buy a vacation home on your favorite beach or a vacation home somewhere warm enough to escape harsh winters. If you’ve planned for it and your budget allows for these purchases and expense, go ahead! You’ve been working and saving for this! But beware the temptation and time to blow through your savings as if you'd just won the lottery.

One way to ease the drain on your savings, keep yourself busy enough to spend out of boredom, is to find a way to bring in some income. That might mean taking a part-time or seasonal job, starting a business that gives you flexibility in your hours, or even transitioning into a new career—maybe even the dream one you never pursued because it didn’t pay enough before. Earning $35,000 a year doesn’t cut it when you need $70,000, but once you’ve retired, it looks better than earning nothing, and at this point (if you have a healthy retirement nest egg), life may be more about personal freedom and enjoyment. Also, find a balance between the expensive activities that cost time and money with inexpensive or free ones: volunteer to train service dogs, teach a pottery class at your local community center, or lead hiking adventures.

While a bit of a bigger step, this stage of early retirement might be the time to move somewhere more desirable now that your job no longer ties you to a certain location. Depending on the cost of living where you currently reside versus that where you’re headed, moving could be a boon to your financial situation—or a major belt tightener!