Yahoo Finance 4 Things You Should Never Buy on a Retirement Budget
You worked hard all of your life, and now the time has finally come to retire. It’s understandable to want to spend your golden years as you’ve always dreamed. However, unless you were able to amass a considerable amount of wealth, you’ll probably need to watch your spending.
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GOBankingRates spoke with a few financial experts about how you should manage your money after your career ends. They named four things you should never buy on a retirement budget and offered several tips to protect your retirement savings.
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Large Homes
“Staying in the comfortable home you love and raised your family in may have been fine — if not ideal — for several years after the kids moved out if you were still working. But you’ll want to downsize in retirement,” said Todd Stearn, founder and CEO of The Money Manual.
“A smaller home will most likely mean significantly more money in your pocket. Even if your home is paid off, which is ideal in retirement, the ongoing maintenance and even utilities on a larger home can be much more costly. And any work you may have been doing yourself — like cleaning, mowing or minor repairs — will likely become more challenging as you age.”
Stearn continued, “A lot of people feel an attachment to their family home, especially if they lived there for decades. But you might be surprised how much of what you feel is transferable to a new place when you fill it with the same décor, mementos, routines, and family and friends.”
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Luxury Rentals
“I worked with a retiree who was recently divorced and decided to rent after selling the family home,” said Renee Collins, a financial planner and founder of Retire Ready Inc. “Her rental had many luxury amenities, such as a workout facility on location, spa, etc. She had more space than she needed, and she wasn’t taking advantage of the amenities that were surely included in the rent.
“During the pandemic, the rent increased along with the cost of everyday living, which was creating some stress on her financial life and emotional life. She decided to downsize to a smaller apartment that still provided for her essential needs and provided peace of mind.”
New Cars
Transportation is likely one of the three biggest expenses in your budget, alongside housing and food.
“If while working you liked buying a new car soon after you paid off the old or leasing a new vehicle every few years, that should stop in retirement,” Stearn said.
“You’re likely putting a lot less wear and tear on [it], so your vehicle will probably stay in great shape for much longer if well cared for. Driving the same car for as long as it remains reliable with standard maintenance is your best strategy. If you’re married and your spouse is retired too, it might even be worth evaluating whether you still need two vehicles.”
Expensive Travel
“Travel is another big-ticket item for many retirees,” Collins said. “They have more time on their hands, so they want to start crossing off vacation spots that have been on their bucket list [since] pre-retirement. Making the decision to cut back on vacation spending is a function of what is really important to the retiree. They can still take vacations during the year, assuming their plan allows for it, but it may be a matter of taking a weekend trip rather than a week-long vacation.
“They could also consider using credit card rewards to save on travel expenses,” she added. “I have a friend who is semi-retired. He shared with me that he has two transactions per month in his checking account: his rent and his credit card bill, which he pays in full each month. He runs all his living expenses [through] his credit card so that he can take advantage of the credit card rewards, which he uses to fund his annual travel.”
How To Preserve Your Retirement Savings
Create a Spending Plan
Stephanie McCullough, founder of Sofia Financial, said, “We always recommend that retirees get super clear on their spending, ideally before they need to cut anything. If you know which items are essential and which are nice to have — and among the nice-to-haves which you would cut back on first, second and third — then it’s easier to make a decision when things get tight.
“Remember that in times of high emotion, we lose access to our higher reasoning, so having a plan of action mapped out ahead of time, a playbook, so to speak, is really helpful.”
McCullough continued, “One of the best ways to make your retirement sustainable is to keep your essential expenses as low as you can. Avoiding ‘lifestyle inflation’ can really help. Maybe you keep your housing expenses low but take nice trips when times are good or drive a beat-up car but go out to dinner when you can. That keeps the must-haves a smaller percent of your spending, so it’s easier to adjust the nice-to-haves according to circumstances.”
Continue Earning Money
McCullough said, “In 26 years of running retirement projections for clients, I’ve seen that earning some money does amazing things for the sustainability of your nest egg. Every dollar you bring in as income is a dollar you don’t have to spend down from your investments. And while some people worry about more income leading to higher taxes, we must remember that taxes are never 100%! If you make more money, you have more money.”
Collins agreed and said, “One of my clients is using her career skills to teach a class at a local community college. It helps her stay engaged with the community and allows her to pursue other interests and hobbies without further tapping into her retirement portfolio.”
Have a Distribution Strategy
“Having the right income distribution strategy is also important to ensuring a retiree does not run out of money,” Collins said. “There are a number of distribution strategies, but the key is [finding a] balance between having enough money that allows you to maintain a comfortable lifestyle and enjoy the fruits of your labor but also allows your portfolio to continue to support you throughout your golden years, which for many could last 20-plus years.
“This can often involve tapping into a mix of pensions, Social Security benefits, individual retirement accounts and other investments in a sequence that maximizes returns and minimizes tax liabilities.”
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This article originally appeared on GOBankingRates.com: 4 Things You Should Never Buy on a Retirement Budget
