Retirement is often viewed as a time to enjoy life without the daily grind of work. However, to fully savor the golden years, one must be financially prepared. Achieving financial wellness in retirement doesn’t happen by accident—it requires foresight, planning, and discipline. With the average lifespan increasing and the cost of living constantly rising, financial security during retirement is more crucial than ever.

Today, we will explore the essential strategies to achieve financial wellness in retirement, including setting realistic goals, managing expenses, diversifying income streams, and maintaining a healthy mindset around money.

1. Start With a Comprehensive Plan

The cornerstone of financial wellness in retirement is having a clear, well-thought-out plan. This plan should address your specific financial needs, goals, and aspirations for your retirement years. Here are the essential steps:

• Estimate your retirement expenses. What kind of lifestyle do you want to maintain? Consider factors like housing, healthcare, travel, entertainment, and any other specific costs. A good rule of thumb is to plan for 70% to 90% of your pre-retirement income.

• Factor in inflation. Prices rise over time, so it’s important to anticipate higher living costs in the future. Healthcare, for example, tends to experience higher inflation than other sectors, so make sure you factor in these increases.

• Determine your savings target. Based on your expected expenses, calculate how much you’ll need to save. Online retirement calculators can be helpful in providing a general estimate, but consulting with a financial advisor can give you a more personalized and accurate number.

• Set timelines and milestones. Having specific saving and investment goals helps track progress. Break your plan down into smaller, achievable goals to keep yourself motivated and on track.

2. Maximize Retirement Accounts

One of the most effective ways to build a retirement nest egg is to take advantage of tax-advantaged retirement accounts. Here are key accounts to consider:

• 401(k) or 403(b) Plans. Many employers offer these retirement savings plans, which allow you to contribute a portion of your salary pre-tax. Take full advantage of any employer match—this is essentially “free money” added to your retirement savings.

• Individual Retirement Accounts (IRAs). If you don’t have access to an employer-sponsored plan or want to save more, contributing to a traditional or Roth IRA is another smart option. Traditional IRAs offer tax-deferred growth, while Roth IRAs provide tax-free withdrawals in retirement.

• Catch-up contributions. If you are over 50, take advantage of catch-up contributions. These allow you to contribute additional funds to your retirement accounts, helping you make up for any lost time or increase your savings as you near retirement.

3. Diversify Your Income Streams

Relying solely on Social Security or one source of income in retirement can be risky. A diversified portfolio of income sources helps mitigate risks and ensures more stable financial wellness. Here are several options:

• Social Security. While Social Security should not be your only source of retirement income, it remains a vital component. Plan to claim it at the optimal time—claiming earlier reduces your benefits, while waiting until age 70 can maximize your monthly payments.

• Pension Plans. If you have access to a pension plan, understand the benefits and the options for taking distributions. Some pension plans offer lump-sum payouts, while others provide a steady monthly income.

• Investment portfolios. Maintaining a diversified investment portfolio with a mix of stocks, bonds, and other assets is critical in generating passive income in retirement. As you approach retirement, you may want to shift to more conservative investments to protect your savings from market volatility.

• Rental income. If you own real estate, renting out properties can be a stable source of passive income in retirement. Be mindful of the time and effort required to manage rental properties, or consider hiring a property management company.

• Part-time work or side gigs. Many retirees choose to work part-time, either for supplemental income or to stay active and engaged. Consulting, freelance work, or even turning a hobby into a small business are popular options.

4. Create a Sustainable Withdrawal Strategy

How you withdraw funds from your retirement accounts and investments is just as important as how you save. A sustainable withdrawal strategy ensures that your savings last throughout retirement. Financial experts often recommend a “4% rule,” which suggests withdrawing 4% of your retirement portfolio in the first year of retirement, then adjusting that amount for inflation each year.

However, this rule may not work for everyone. Your withdrawal strategy should consider factors like life expectancy, healthcare costs, investment returns, and other income sources. Work with a financial advisor to craft a personalized plan that balances your need for income with the goal of preserving your wealth.

5. Manage Debt Wisely

Entering retirement with significant debt can undermine financial wellness. Ideally, you should aim to pay off high-interest debt, such as credit cards or personal loans, before retiring. However, not all debt is detrimental:

• Mortgage debt. If you still have a mortgage when you retire, assess whether it makes sense to pay it off early. With interest rates historically low, some retirees opt to keep their mortgage to preserve liquidity or invest in higher-return assets.

• Low-interest debt. Certain types of low-interest debt, like student loans or car loans, may be manageable in retirement, especially if you have a steady income stream. Just make sure your debt payments don’t exceed your income.

6. Plan for Healthcare Costs

Healthcare is one of the largest and most unpredictable expenses in retirement. Even with Medicare, out-of-pocket costs for things like prescription drugs, long-term care, and supplemental insurance can add up quickly.

• Medicare planning. Understand the ins and outs of Medicare and what it does—and doesn’t—cover. Consider supplemental insurance or Medicare Advantage plans to cover additional costs.

• Health Savings Accounts (HSAs). If you have a high-deductible health plan, consider contributing to an HSA. These accounts offer triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.

• Long-term care insurance. Depending on your health and financial situation, long-term care insurance may be a smart way to protect your assets and cover the costs of nursing homes or assisted living facilities.

7. Maintain Financial Wellness Through Mindful Spending

Achieving financial wellness in retirement also requires a disciplined approach to spending. Without the structure of a paycheck, it’s easy to overspend, especially in the early years of retirement. Creating a realistic budget, tracking your expenses, and avoiding large, impulsive purchases will help you stay on course.

8. Keep Learning and Stay Engaged

Finally, financial wellness is not just about numbers—it’s also about maintaining a healthy relationship with money. Stay informed about market trends, tax laws, and financial planning strategies. Attend financial workshops, consult with experts, and continuously refine your plan as your circumstances change.

Additionally, staying mentally and physically engaged can enhance your financial wellness. Many retirees find fulfillment in volunteering, part-time work, or pursuing lifelong learning opportunities. Not only does this provide a sense of purpose, but it can also reduce the likelihood of expensive healthcare costs later in life.

Achieving financial wellness in retirement requires careful planning, strategic saving, and smart spending. By diversifying your income streams, creating a sustainable withdrawal strategy, and staying informed about financial trends, you can enjoy your golden years with peace of mind. The key is to start early and remain adaptable as your life and financial needs evolve.

In short, financial wellness in retirement is within reach—it's all about being proactive, staying disciplined, and making informed decisions.

Warm regards,

Sharon, Your Safe Money Lady™

Sharon Ben-David

Phone: (954) 261-5200
Licensed Mortgage Broker, Certified Professional Retirement Planning Adviser, and Financial Advocate

Protecting Your Nest Egg, Inc.

NMLS #2308601