Approximately 10,000 baby boomers reach retirement age each day, according to a Pew Research Center study. That means many individuals are likely beginning their first full year of retirement this month.
Retirement is certainly a time for relaxation and low stress, but for many, “golden years” can be accompanied by anxiety, especially when it comes to finances. Retirees must learn to live without a steady income and effective financial management often becomes increasingly difficult with age.
Here are a few tips to help reduce common financial anxiety and keep your retirement on track:
Craft a budget
Retirement is not an excuse to spend freely. In fact, budgeting is just as important for retirees as it is for recent college graduates trying to repay student loans on an entry-level salary.
A recent Morgan Stanley study found that making retirement savings last as long as you live is a concern for Chicago-area high-net-worth investors.
Regardless of how much cash is stowed away, money can disappear quickly if a detailed and meticulous budget and/or spending plan is not put in place.
Additionally, keep in mind that with people living longer, retirement accounts must have the ability to span decades.
Make sure to factor unplanned expenses into your annual retirement budget. Setting aside a bucket of money specifically for unexpected health problems or home damage can provide an important buffer for your retirement account.
Live within your means
From a beachfront house in Florida to traveling the globe, most of us have an ideal retirement scenario in mind. However, it is critically important to ensure you have the financial capability to live your dream scenario before taking steps to make that life a reality.
Living beyond your means is often a precursor to overspending and may lead to quickly evaporating retirement funds. It might have been easier to overspend when there was always a paycheck around the corner, but there is not as much opportunity to do so when living on a fixed income.
On the other hand, choosing to live at or below your means can result in increased spending flexibility and additional options when it comes to considerations like leaving behind a financial legacy.
Look for additional income avenues
Supplementing 401(k)/IRA withdrawals and Social Security with additional income can be an effective mechanism for reducing financial anxiety during the “golden years.” You don’t have to work 40-hour weeks or go back to school to learn a new skill, but finding an avenue to earn a bit of extra money can make a huge difference.
For example, you might earn enough to cover all nonessential costs, protecting your retirement account for only necessary expenditures.
At the very least, the presence of multiple income streams can offer some piece of mind.
Think about your legacy
The process of crafting a financial legacy is another common source of stress in retirement. Many retirees must balance the desire to provide financially for their children and grandchildren, while also leaving behind a positive and lasting impact on the local community through charitable giving.
Ensuring your will, insurance policies, beneficiaries and other critical end-of-life documents are accurate and up-to-date can prevent a large financial headache down the road. Additionally, a commitment to saving and smart spending habits throughout retirement will help you maintain the ability to provide for future generations.
If you or a loved one are stressing about money in retirement, you’re not alone. It’s a common feeling that most everyone will experience. However, with a bit of discipline and proactive planning, you can foster a retirement that is in line with your goals.
• Ronald Stenger is a managing director, wealth management and wealth adviser with the Wealth Management Division of Morgan Stanley in Oak Brook.