How Your Money Mentality Should Change in Retirement

How Your Money Mentality Should Change in Retirement

November 14, 2022

Although retirement is often thought of as a time of rest and relaxation, the shift from traditional employment to investment income can be difficult.

After years of strenuous work, retirement is the light at the end of the tunnel for many of us. However, what we don't realize is that this shift from gaining employment-based income to using investments as our primary source can be tougher than expected, especially with inflation. It is not just our income that changes but our habits too. Going from working to filling our days in other ways, can also have an impact on the budget. Just as your views towards money have changed throughout your career, they should also shift when you enter retirement age.


4 Ways to Change Your Retirement Money Mentality 


1. Making Retirement Funds Last 

 For most Americans, saving for retirement is a top priority. Once retired, the majority of your income will come from a 401(k) or 403(b), Social Security, and maybe a pension. Now you have those savings, you will want to think about how long your money will need to last for you and your partner, and potentially just one of you. Retirement can be a very enjoyable time, but it's important to be realistic about how your money mentality should change. Review your budget, establish budget goals that accommodate your lifestyle, and make changes. You may need to adjust your spending habits to ensure you have enough money to cover your costs. 

In addition, you will also need to be mindful of healthcare costs. Health-related expenses can add up quickly and easily eat into your retirement savings. Planning ahead and budgeting for potential health problems is crucial to a successful retirement.

Now that you're retired, your focus has shifted from setting retirement savings goals to setting a retirement spending budget.


2. Consider Market Risks

Before retirement, it was important to balance portfolio growth with risk. But now that you are retired and relying on your savings, market fluctuation and other risks are much weightier considerations.

As more Americans are enrolling in 401(k) plans and other defined-contribution retirement accounts, it is important to understand the pros and cons of these investment options. One major benefit is that investors have greater control over how their nest egg is invested. However, this also means that people may be more likely to make risky investment decisions that could negatively impact their financial stability later in life.

In retirement, it is wise to invest in more conservative options that can withstand tough market conditions. This also means having a larger cash reserve.

3. Consider Working Part-Time

You can still work and collect Social Security if you want to improve your retirement lifestyle or are not yet ready for full retirement. Working part-time in retirement can provide extra income and can be rewarding. It can be an opportunity to pursue a retirement career in one of your passions. In addition, if you are still employed, you may be able to keep your health insurance through your employer. This is an important consideration, as healthcare costs can add up quickly in retirement.

However, if you plan to work while collecting Social Security benefits before reaching full retirement age, the “earnings test” may decrease the amount of your monthly check. The full retirement age is 66 to 67 years old depending on when you were born. Also, working longer while collecting Social Security can affect how much money you eventually receive in benefits during retirement. 

The key to making this work is to understand how your benefits will be affected and to plan accordingly. In another post, we go into further detail about Social Security and Retirement Earnings


4. Make Tax-Efficient Decisions

In retirement, taxes can have a big impact on your bottom line. Be mindful of the tax implications of your investment and withdrawal choices. For example, if you have a 401(k) from a previous employer, you may want to consider rolling your 401(k) over into an IRA. This can provide more flexibility and control over your investments as well as access to a wider range of investment options. 

It is important to be mindful of the tax implications of your investment decisions in retirement. With a little planning, you can keep more of your hard-earned money. There are other tax-efficient options to consider too, including making the most of state tax credits by donating to charities. Not only will you be helping out causes close to your heart, but you'll also see a decrease in the amount of taxes you owe. 

With retirement now on your horizon (or maybe you have already reached retirement) it is time to rethink your relationship with money. Just as your views towards finances have changed over the course of your working life, they should continue to evolve as you enter this new stage of life. You need to be more mindful of your spending and plan ahead for potential obstacles. A fee-only financial advisor can help ensure you are making the best decision for your circumstance. Retirement should be a time of relaxation and enjoyment, and with the right planning, it can be just that!