After retirement, many people rely on a pension, Social Security benefits, and Medicare to meet their financial and medical needs. However, these sources are often not enough to cover monthly expenses, leading retirees to tap into their savings.
Money management becomes crucial in retirement to ensure that retirees do not outlive their savings. Pensions may not keep pace with inflation, and retirees may face unexpected medical costs, wish to support their children further, or get the sudden urge to travel and explore.
Thankfully, various investment strategies can help retirees maintain their financial stability.
Your Income
Before deciding on your current and future income, it's important to review your existing income sources. Know how much money you receive each month and where it comes from.
Retirees often have pensions that provide guaranteed monthly income and Social Security payments. Pensions may not always adjust for inflation. Additionally, some retirees might earn income from business interests or dividends from stock investments, as well as withdrawals from an IRA after retirement.
You could also consider a reverse mortgage to access equity in your home for monthly payments.
Your Expenses
Retirees often face various monthly expenses that may not decrease as much as expected. While you won’t spend on commuting or office attire, you still need to budget for essentials like food, clothing, and transportation.
Additional expenses might include medical co-pays, mortgage payments, and costs for children and grandchildren. Creating a list of all your monthly expenses is essential, as you may be overlooking some costs.
For instance, many retirees pay property taxes on their homes, which can rise over time. Check whether you qualify for senior discounts in your state.
As you age, be mindful that medical costs may increase, including expenses for specialized foods and mobility aids.
A Diversified Portfolio
Even in retirement, having a diversified portfolio is a must. Consider any social security and a pension a floor from which everything else flows. This is your basic income. Any need for extra income can be made up in other ways. Many retirees realize the need to balance risk with the need for income.
To that end, there are many ways to make money and reduce the risk of losing it so you don't have to dig into your capital. Good choices include CDs, treasury bills, individual company bonds, bond mutual funds and blue chip stocks that pay dividend income. Each type of investment pays money but some are riskier than others.
For maximum returns and reduced risk, pick two or three such investment choices and keep them.
Bottom Line
When it comes to retirement and investing, it's best to keep a close eye on your finances. You want to make sure that your investments are balanced with your expenses.
You may need to consider cutting expenses by lowering your housing costs such as moving to a place with a lower cost of living or downsizing to a smaller house. This will help make sure you are living within your financial means even in retirement.
