Having the right mindset about money as you enter retirement is key to leading a balanced, healthy life.
Kassandra Dasent, financial consultant and CEO of Orange Park, FL-based Minding Your Money, says that developing the practice of emotional awareness to channel and support the financial choices and decisions will lead to a positive money mindset. “Those who choose to live life through a lens of abundance firmly believe that they have the ability to become wealthy,” she says. “They welcome favorable outcomes, and they often practice gratitude for what they already have.”
Conversely, Dasent says, people who’ve developed a scarcity mindset often struggle with believing that their financial situation can improve. “They may refer to past negative financial outcomes to predict future possibilities, and limit themselves from opportunities to earn and do more,” she says.
“Older households”—those defined as containing members 65 and older—spend an average of $45,756 a year, or approximately $3,800 a month, according to data from the Bureau of Labor Statistics (BLS). That works out to about $1,000 less than the monthly average spend by all U.S. households combined. BLS breaks retirees’ average monthly spend into seven categories: housing ($1,322); transportation ($567); healthcare insurance premiums ($499); food ($483); personal insurance and pensions ($237); cash contributions ($202); and entertainment ($197).
Even though you might be living with a fixed income, you shouldn’t feel this limits the ways you can improve your quality of life. Dasent recommends identifying your core values—such as spending time with your family, traveling or financial security—and evaluating your current spending to determine if it reflects those values. “If necessary, you can reprioritize your spending and downsize in areas that matter less to you, so you can experience greater life satisfaction,” she says.
Balancing Your Retirement Budget
When you approach retirement, it’s a good rule of thumb to work with a financial adviser to develop a solid budget. An advisor will be the first to tell you: While there are lots of factors that affect your retirement income, such as rate of return on investments, Social Security, pensions, part-time earnings and more, the one thing you have the most control over is your spending.
Your planner should ask to see a year’s worth of bank and credit card statements, your last two pay stubs, and your prior year’s tax returns, as well as your recurring quarterly, monthly and annual fixed payments. You’ll also want to discuss optional expenses like visiting your grandchildren, traveling, eating out, sports, entertainment, or new (more expensive) hobbies. Based on those costs, the advisor will help you create a workable budget that allows for both fixed and “quality of life” expenses.
Don’t forget to account for future healthcare costs, especially if you’re still employed and your job currently picks up part of the premiums. If you retire before age 65, premiums can be costly—between the ages of 60 and 65, your premiums could run up to $1,000 per month before Medicare kicks in. Review your plan options so you can budget for those costs.
What to Do When You’re Approaching Retirement
If you’re within a few years of retirement, work with your current expenses as a baseline, making your budget more accurate and enhancing its value as a planning tool. “Tally your current expenses and consider which costs are likely to rise or fall in retirement and by roughly how much,” says Clark Kendall, president of Rockville, MD-based Kendall Capital and author of Middle-Class Millionaire: Surprisingly Simple Strategies to Grow and Enjoy Your Wealth. “For instance, are you still making mortgage payments? When will you have it paid off in full? Are you paying anything for your children’s college or other costs that you don’t expect to have in a few years? Some expense areas might not change much, such as food, clothing, utilities, property taxes, and insurance, but some could if you decide to downsize.”
When you retire and stop commuting, you may spend less on transportation. However, your leisure costs, including travel and vacations, might increase in your earlier, more active retirement years. “Once you’ve tallied your expenses, list your sources of guaranteed income, including Social Security benefits and any pensions,” Kendall says. “The gap between your anticipated expenses and your known income sources is what you’ll need to fund through your retirement account withdrawals and any other income, such as earnings from a part-time job.”
Dasent adds that if you’re still carrying consumer debt such as credit cards or loans, you can review your situation with a reputable financial counselor to determine a repayment strategy that will progressively reduce your debt load without significantly compromising your overall standard of living.
Allocating a specific amount each month in your budget to self-care serves as a concrete way of prioritizing your well being, Dasent says. “You need to give yourself permission to live a life by your own design,” she says. “You can also evaluate the cost in relation to how often you’d make use of the purchase, and if it aligns with what you truly value.”
For example, Dasent points out, a once-in-a-lifetime trip to Europe may feel financially out of reach. “However, by budgeting the cost a year or more in advance, cutting some costs in some expense categories, deciding to travel during low season and finding reasonably priced accommodations online can make this dream more affordable than you initially believe,” she says. “The idea is to be resourceful and consider all of your available options instead of immediately telling yourself that it isn’t possible.”
For people approaching retirement, Kendall recommends starting early, saving first and living below your means. “By adopting these simple habits, dictated by a saver’s mindset, almost anyone can create and maintain a healthy financial life before and after retirement,” he says. “It’s not how much you earn—it’s how much you save that will lead you to a financially healthy retirement. If you earn a decent middle-class or upper middle-class salary of $80,000 or $120,000 or $160,000 per year, but spend less than you earn, your money will grow and you’ll accumulate wealth. It’s simple math. Well, actually, it’s compounding math!”
Also consider keeping a separate account for your “sleep-at-night” funds, says Jessica Grande, a senior client advisor at Boston-based LEVATUS Wealth Services. “These assets are invested in low-risk fixed income and don’t fluctuate too much in value,” she says. “You can see a predictable amount in this account. You can have anywhere from three to seven years of expenses, depending on the individual’s risk tolerance and financial means.”
Grande also recommends writing out your annual cash flow calendar. “Once you have a handle of your day-to-day expenses, you’ll feel more inclined to invest in your personal wellness,” she says.
Design the Life of Your Dreams
Here are nine areas to spend your extra dollars to design the life you want.
1. Advisors. Retirees often experience stress from transitioning from a job with steady pay into living on a fixed income. They also may feel they lack a sense of purpose. Because of that, it makes a ton of sense to alleviate stress by working with a good financial advisor who can help you achieve financial stability, with room for extras.
“It comes back to your vision for retirement, what’s on your bucket list, what provides you the most satisfaction,” says David J. Goldwasser, CLU, ChFC, ChSNC, a financial planner and special care planner with Elmsford, NY-based Barnum Financial Group. “As a financial planner, it’s more than just quantitative calculations and numbers; it’s the qualitative things that need to happen without compromise that make our clients happy with what they’ve accomplished. By regularly reviewing plans with clients, we help them stay on course and not deviate from the singular goal of being comfortable and happy in retirement.”
In addition, finding a therapist, counselor or life coach who can help you successfully transition into retirement can help with emotional concerns as well as identifying your new purpose in retirement.
“Think, explore, read, talk with a life coach or other experts who might be able to add insights,” Kendall says. “Then make a plan and see if you can make it happen, of course while incorporating financial moves to pave the way.”
2. Gyms and fitness programs. About 53% of retired Americans participate in physical activities, allocating about 13% of their annual spending to fitness, according to Fung Global Retail & Technology. As a result, the fitness industry has started to offer more specific memberships and programs for seniors. “If you like to exercise at the gym, but feel like it’s too expensive, think of the gym as checking off other boxes for you as well,” Grande says. “It’s a social activity, so you can invite friends with you. Plus, working out keeps you healthier, so you could lower your medical bills.” Yes, you can be fit after 55.
3. Healthcare. Many retirees are rightly concerned with how to predict and pay for healthcare. There are a few ways to prepare. First, account for predictable or preventative-care expenses, such as prescription medications, as well as eye and hearing care. For example, consider that approximately one in three people between the ages of 65 and 74 experiences hearing loss, and nearly half of those older than 75 have difficulty hearing, according to the National Institute on Deafness and Other Communication Disorders (NIDCD). That means many seniors eventually require a hearing aid for better quality-of-life experiences—and keeping hearing up to par helps stave off more serious conditions like depression and dementia. Higher-end hearing aid prices can run $150-200 per month, so it’s important to plan for those expenses.
In addition, Kendall cites a 2018 Fidelity Investments survey that estimates the average couple needs to set aside $280,000 in today’s dollars for medical expenses in retirement, excluding long-term care. “But it’s the end-of-life costs—your final five years on this earth—that can jeopardize your ability to provide for your spouse after you pass away,” he says. “These can easily exceed $200,000 in today’s dollars, depending on your needs and whether you suffer from dementia, as they include long-term care services.” Understanding Medicare, taking advantage of HSAs, and planning for long-term care are all important factors to help you determine the cost required to sustain a good overall quality of life, Kendall says.
4. Healthy food. Whether you want to spend more for organic food, on a healthy meal prep service or farm-to-table dining out, that’s your prerogative. It’s always a good idea to consult your healthcare provider or nutritionist to determine the best menu options for yourself. Plus, when you eat whole foods that are protein-rich, full of good fats, and contain complex carbohydrates, you’ll have more energy, feel happier and generally be healthier as you age. In fact, there are links between eating well and your hearing health. Since learning to cook healthy meals can be engaging and fun, look into taking cooking classes at a local college or restaurant.
5. A smartphone or tablet. While you probably don't want to spend many hours on your smartphone surfing social sites or the web, a smartphone or tablet can help you keep in touch with family and friends: phone, text, email and video chat.
“Having a smartphone in particular serves a dual purpose,” Dasent says. “It’s a wonderful way to keep in touch with family and friends, but it’s also important to have when out and about to be able to call for assistance, or be located, if the need arises.” Plus there are lots of apps and gadgets designed to help seniors.
Tip: This is a good place to note that there might be areas to consolidate expenses, such as having multiple cell phones under one account or eliminating a landline completely, Goldwasser says.
6. Travel. One option for retirees is a nomadic lifestyle—driving around the country in an RV, for example. “We have clients who’ve toured the country in an RV for the past 12 years and now realize they’re ready for a more permanent lifestyle,” he says. “We have clients who sail in the Bahamas all winter and then live in an RV, touring America during the warmer spring and summer months. We also serve the more typical snowbirds who spend the winters in Arizona, Florida, or Hawaii and live in the Washington, D.C. area the rest of the year. There are so many options and variations. You can try something on for size for a few years and then move on.”
7. An active social life and hobbies. Focus on your mental and physical health by planning group activities. Schedule a hike, play outdoor games, or take an exercise class with your friends. Staying in touch and making new friends will widen your support group and provide a sense of belonging.
“An active social life doesn’t need to be an expensive one,” says Goldwasser says. “For example, if you’re living in a planned community, there might be a club house that hosts movies or events. Many retirement communities are near locations that have access to shows, concerts and other cultural events.”
8. Education. Many community colleges and universities offer free or discounted continuing education courses for seniors. “Investing in keeping your brain fit through focusing on maintaining your mental acuity is money well spent,” Dasent says. “There are low-cost online options; however, I encourage retirees to attend local in-person education sessions to meet like-minded people and increase their social connections.”
9. Philanthropic causes. Despite a reduced income, Americans age 65 and older donate almost 11% more to religious, educational, charitable and political organizations than people aged 55 to 64, according to Kiplinger. Retirees aged 75 and older donate even more, on average.
“Personal philanthropy, or charitable giving, is often a lifelong pursuit, but it can take on even greater importance in your later years,” Kendall says. “With proper planning, the charitable giving that may have been a major thread throughout your life can continue after you’re gone, allowing you to keep making a difference.”
A common characteristic Kendall observes in his long-term financially successful clients is that they save at least 10% of their earnings, give 10% and live on 80%. “With that in mind, I’m all for gifting to charities with the most bang for the buck, allowing you to make an even larger difference and allowing your money to go further,” he says. “By making charitable donations that enable you to reduce your tax burden, your money can go to work in the most effective way, supporting your favorite causes even more.”
Ultimately, retirees are at a stage in their lives where they’re buying back their time. “Many have worked decades and invested their money prudently in order to retire,” Dasent says. “As a result, you should enjoy some of life’s pleasures. Once you can afford to do so without adverse financial repercussions, I encourage you to live life to the fullest and embrace the possibilities.”
Kassandra Dasent – Minding Your Money, LLC
Levatus Wealth Services