Establishing good spending habits in retirement

We spend a lot of time preparing for retirement by saving up and investing. Unfortunately, we don’t give enough thought to what we will do once we actually retire and need to live off our accumulated wealth.

The way you spend during retirement will determine whether or not you outlive your money. Establishing good spending habits can help you prepare for the expenses that come with retirement, and ensure that you live in comfort.


First of all, it’s important to understand that you might not spend less during retirement. We like to use rules of thumb that indicate that we will spend 70% to 80% of what we do now once we retire. However, this might not be the case. You might be surprised to discover that you spend more, not less. Here are some things to watch out for:

  • Inflation: This is a reduction in spending power, and it’s out of your control. As time passes and costs rise, you’ll find that your dollars don’t go as far. This has the impact of higher spending to meet your needs.
  • Health care: According to studies, many people haven’t thought about how much it will cost them for healthcare and long-term care. Unfortunately, health care costs continue to rise, and that means that you will likely spend quite a bit. In fact, health care costs can be as much as $220,000 for an insured couple during retirement, according to one study. That’s a large chunk of your retirement.
  • Catastrophes: Don’t forget about unexpected financial catastrophes. Natural disasters can draw down your nest egg quickly, especially if you aren’t properly insured. Other problems like a stock market crash right as you need your money, or some other systemic failure, can also impact your ability to care for your needs in retirement.

These unexpected expenses can be prepared for if you take the time to consider your situation. Consider saving more now to build a bigger nest egg. Additionally, it makes sense to look at proper insurance. Long term care insurance, home insurance, health insurance and other asset protection strategies can help you bear your costs later.

One of the best options you have right now is to set money aside in a Health Savings Account. If you have a high-deductible health plan, you can open one of these accounts and set aside pre-tax dollars. On top of that, if you use the money for qualified health expenses, you don’t have to pay taxes on the earnings. It’s completely tax-free. If you are careful, you can save up money in your HSA to provide cover your health care costs in retirement.

Don’t forget to develop a sound investing strategy that takes into account the possibility of market cycles. While the market recovers over time, the fact of the matter is that you might need money immediately, and might not have time to wait for a market recovery. Using a bucket strategy can sometimes help you by allowing you to draw on cash and interest and dividend income during downturns to buy yourself time.


Of course, the good money habits you develop now can be carried over into retirement. Make it a point to create a realistic budget based on your retirement situation. Think ahead to the activities you want to try, as well as your needs.

Make the distinction between needs and wants so that when you do retire, you at least have your needs covered.

Performing a needs assessment now, before you get to retirement, can be valuable in helping you plan ahead. Your retirement budget should be based on the income you can generate from your portfolio, as well as what you can expect from your Social Security payment and any pensions you might have.

Realize that during retirement you might have to save up for things like vacations and major purchases. You’ll need to create a budget around your fixed income so you don’t outrun it. Don’t get caught up in the total size of your nest egg. Instead, look at your monthly cash flow, and create a plan around that number.

You can also extend the life of your nest egg and prepare for expenses by looking for ways to earn more money over time. A part-time job can help you earn a little extra money and stretch your budget. This can be a good solution during times when the market is down and you need a little extra time to let your portfolio recover.

Plan now for a long retirement. Chances are that your retirement will last longer and cost more than you anticipate, and it’s up to you to prepare.

investing for retirement ebook ipad - McClain Lovejoy
investing for retirement ebook ipad - McClain Lovejoy
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