How to Avoid Going Broke in Retirement

When I pictured retirement, I envisioned myself on a beach somewhere.

After acquiring my first finance job, I had a harsh wake-up call. Looking at retirement accounts all day made me realize, I needed to start planning now if I was going to end up on a beach.

Retirement was closer than I thought.

Unfortunately, too many of us fail to plan. 1 out of 3 Americans have nothing saved for retirement and will solely rely on social security.

Those of us who are consistent and plan ahead will be able to have peace of mind when retirement comes around.

However, no matter how much planning and saving you have accomplished by the time retirement comes, you still need to be careful with your funds.

Here are a few ways to avoid going broke during retirement:

Cut Expenses

Once you retire, you will have more time to do the things you love. However, if you haven’t planned in advance for these extra expenses, you might need to cut back in other places. The less your expenses are, the less you will have to worry about taking too much from your retirement.

Making adjustments to your lifestyle will help your dollar go further.

There are many ways to cut expenses. 

Monitor Your Spending

Living on a fixed income may take some adjusting, so creating a budget is key. Your lifestyle is about to change, therefore, your budget will need to change along with it.

Make sure to include health expenses and a savings plan. Even though you’re retired, it is important to continue to save for your future. You never know when you will need your rainy-day fund.

Related: The Best Retirement Calculators [How Much Will You Need to Retire]

Plan for Taxes

One thing that many may forget is that your taxes will change when you retire. It is important to understand these changes prior to retirement. Meet with a CPA to make a plan for retirement. Depending on your streams of income, it will be important to plan ahead and know your tax implications.

Just because you retire doesn’t mean you are free from Uncle Sam.

Hiring a tax professional is not only a great idea for retirement but also with your current position. You may be missing out on opportunities to save money and lower your taxes.

Create Multiple Streams of Income

One thing we know for sure is that relying on social security alone may leave you broke in retirement. Creating multiple streams of income will help you avoid financial stress. Do you have a 401k plan or are you investing in the stock market? Have you considered investing in real estate or starting your own business?

There are many options to create another form of cash flow. Relying on one stream of income will only leave you frustrated and strained for money. Plan ahead and choose the right investment for your lifestyle.

Continue to Invest

Just because you have retired doesn’t mean you need to stop investing. You will need your nest egg to last at least 20-30 years after your stop working. The money you invest will need to continue to grow.

Change your asset allocation and try not to be fearful of the market. Find a financial advisor with a similar investing philosophy to yours. This will help you remain accountable and level headed through market fluctuations.

Warning: Don’t put all of your eggs in one basket. You don’t want to gamble during your retirement. You are not a day trader; you are retired. Make an investment plan and stick to it.

Create a Flexible Withdrawal Rate

Life happens.  The market fluctuates, and your lifestyle changes. It is important also that you reevaluate your withdrawal rate periodically. You want to make sure that the rate is appropriate for what is going on in your life and the market.

It is good to have a percentage in mind you would like to stick to but there will be times this may need to change. The rule of the thumb is 4% annually. This is a safe amount to take from your retirement accounts.

Be flexible and prepare ahead of time.

Take Care of Your Health

This might seem obvious but medical bills can be extremely expensive. Accidents happen but there are a lot of ways we can take care of our health in the present. Taking care of your health can help you save money in the future.

Making little changes to your lifestyle and diet can drastically impact your retirement. Take a walk daily or maybe try a new healthy budget friendly meal. Every little bit helps.

Prolong Social Security Distributions

Many people are eligible for social security distributions at 62. The assumption is that they will receive more money over time if they take their distribution as soon as possible. This is not the case. If you were to wait until age 70, you would receive about 32% more. Over the course of your retirement you will receive more money overall.

By creating multiple streams of income, you will not have to rely solely on social security. Wait as long as possible to take your distributions. It will benefit you in the long run. Planned security is total security.

How will you avoid going broke in retirement? What are you doing to create multiple streams of income?

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  1. Sooner the better! Some say the day you start earning you should start saving for your retirement. Even if you don’t start that early, you should start doing it by late 20s. Retirement planning involves identifying and analyzing your financial objectives, taking into account your current financial position and drawing a roadmap which includes a selection of proper investment instruments, creating short-term and long-term investment goals and funds allocation in a disciplined manner. As retirement planning is a long-term investment, the earlier you start the better results you will get.

    1. Yes. The earlier the better! Great advice.

  2. This is a nice read. However the whole point of financial planning is to be able to enjoy a high quality of life. The smartest ways to generate wealth with the maximum return on investment is EQUITY INVESTMENT. With due research, proper planning and discipline equity market offers one of both in SHORT TERM as well as LONG TERM. Selecting the right company at the right time and at the right price can help an individual grow her/his investments. Infact, we have maintained an accuracy rate of 94% year on year on our stock calls.

  3. Avatar Jennie Willis says:

    This is a great list and one which you should probably apply throughout your whole life as well as in retirement. Certain aspects of it anyway. I think if I were to retire now I’d be useless and broke within a matter of months. I’m hoping, well, praying that by the time I do reach retirement age (fingers crossed) that I have enough money-management knowledge in order to make a proper job of it. For years I’ve made mistake after mistake in terms of budgeting, spending beyond my means or simply not saving when I should.

    1. Avatar Ashley Chorpenning says:

      Consistency is key when planning for retirement. It doesn’t matter where you are financially you can always make adjustments. Being aware of your struggle is half the battle. Thank you for sharing your story.

  4. Avatar Joanne Mahoney says:

    Good article. My husband and I are 5 years from retirement. One item that I didn’t think about that you highlighted in your article is tax implications. I guess we have a little more planning to do.

    Thank you.

    1. Avatar Ashley Chorpenning says:

      I am glad this tip was helpful for you. It is great you are planning ahead and making adjustments. Thank you for sharing.

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