How Retirees Can Save Money and Build a Legacy

Even with careful retirement planning, making smart financial choices matters after you’ve retired. But if you manage your funds wisely, you can embrace all the experiences retirement has to offer and create a meaningful legacy for the people and causes you care about.

Saving money in retirement

Saving money in retirement is less about increasing your bank account and more about making what you have last. But how can you ensure your expenses are covered without dipping into the funds you planned to leave your loved ones?

The first step is to revisit your budget. Here's a simple framework to help:

• List your income sources. Mapping out your reliable income sources, such as Social Security benefits, pension payments, and withdrawals from retirement accounts or savings, gives you a good idea of your monthly income.
• Categorize your expenses. Grouping your expenses into essentials, like housing and insurance, versus discretionary items, like travel and entertainment, lets you see how much flexibility you have for the extras that make retirement enjoyable.
• Build in a cushion. Market fluctuations, inflation, or unexpected bills can easily strain a fixed income, so you want to leave room in your budget for surprises.

With a budget that reflects both your priorities and potential surprises, you can make sure your money supports the lifestyle you want throughout retirement while also setting aside something meaningful for your loved ones.

Managing essential expenses

You can’t avoid essential expenses like housing, healthcare, and taxes, so you want to manage them carefully. Doing this helps free up resources for the lifestyle you want today and the legacy you want to leave tomorrow.

Finding flexibility in your housing costs

Experts commonly recommend spending about 20%-30% of your retirement income on housing, but this percentage depends on your specific circumstances. For example, if your mortgage is paid off, you may be able to allocate less toward housing and more toward your legacy.

However, even with a mortgage, you may find retirement gives you new flexibility that helps lower costs. Many retirees save on housing by:

• Downsizing to a smaller home, reducing maintenance costs, home insurance premiums, utility expenses, and property taxes while potentially freeing up equity for your legacy goals.
• Relocating to a lower-cost area, stretching their retirement dollars further.
• Moving to senior communities, which may combine affordability with amenities and social opportunities.

Reducing housing expenses can increase the inheritance you want to leave your family and friends.

Keeping healthcare costs under control

Controlling healthcare costs starts with knowing your initial enrollment period (IEP) for Medicare. It lasts for 7 months and begins three months before you turn 65, includes your birthday month, and ends three months after. Missing this window can lead to significant penalties and higher premiums.

Once enrolled, look for in-network providers whenever possible to minimize your out-of-pocket costs. You’ll also need to review your coverage each year, because plan details and provider networks often change.

Lastly, think about long-term care. Medicare offers preventive care benefits that may help you avoid the high costs of treating serious conditions, but it doesn’t cover custodial care, such as assisted living facilities or in-home caregivers. Long-term care insurance may help cover these expenses and protect the financial legacy you want to leave behind.

Making withdrawals with taxes in mind

Tax strategies need to fit your circumstances and should always be discussed with a tax professional. That said, there are some guidelines you might use to minimize withdrawals and reduce taxes. For example, you may want to:

• Delay claiming your Social Security benefits. For each month you delay benefits past your full retirement age, but before age 70, Social Security increases your future benefit.
• Draw on taxable accounts first. Using savings or brokerage accounts before tapping into retirement accounts may allow your tax-deferred assets to grow for a longer time.
• Keep an eye on tax brackets. Withdraw just enough each year to stay within your current tax bracket rather than pushing yourself into a higher one.

Another key consideration? The required minimum distributions (RMDs) – the minimum you must withdraw each year – that apply to certain retirement accounts, including traditional IRAs and most employer-sponsored plans.

RMDs start at age 73 for most retirees, and missing one can trigger steep penalties – which is why personalized planning is important in retirement. Working with a financial professional can help you avoid mistakes and preserve more of your nest egg for the next generation.

Turn savings into a lasting impact.

Retirement can be about living well today and shaping tomorrow. The key is to think of “saving money” as a way to gain flexibility and strengthen the legacy you leave behind.

Sources

https://www.fidelity.com/viewpoints/retirement/retirement-and-budgeting 

https://www.bankrate.com/retirement/how-to-budget-for-retirement/

https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties 

https://www.hhs.gov/healthcare/about-the-aca/preventive-care/index.html 

https://www.ssa.gov/benefits/retirement/planner/delayret.html

https://www.bankrate.com/retirement/ways-to-withdraw-retirement-funds/ 

https://www.bankrate.com/retirement/required-minimum-distribution-rmd/