The shift from saving to spending can feel stressful. Lean into lifelong budgeting wisdom to stay on track during retirement.
Retirement lengths are protracting as Americans live longer. Longevity is a complicated science, one with a dramatic impact on retirement savings. While the average life expectancy for an American man is 72.3, the average American man who lives to age 70 will live another 15 years, to age 85. Retirement planning experts find that most people underestimate how long they are likely to live–and thus, how long their retirement will last.
Since no one can know exactly how long they’ll live to enjoy retirement, the best strategy is to develop ongoing sources of retirement income, such as traditional monthly pensions and Social Security. Of course, it’s also important to save up as much as possible in retirement accounts throughout one’s working life. But even for those who were best able to prepare financially, when the moment comes to bid farewell to a biweekly paycheck, it can feel like a momentous shift.
If adjusting to a new budget in retirement feels stressful, remember that, just like during the rest of life, there are three main ways to support a healthy budget in retirement. First of all, have a budget. Then, increase your income, and/or decrease your expenses.
Here are some ways to maximize your retirement budget and minimize the stress of the transition.
A Second Act: Encore or Bridge Employment
In retirement, the goal isn’t to work full time or further your career. Without those constraints, new possibilities arise for ways to earn money. Some newly-retired professionals continue to share their talents through consulting or teaching. Others take the opportunity to try something novel or apply their skills in a totally different field; for example, someone who’s always worked in corporate finance might shift to a financial role in an animal shelter or arts organization. This shift to related-but-different or entirely an entirely new field of work is sometimes called an encore career. A longitudinal study found that, among retirees, these kinds of jobs can boost a sense of life satisfaction.
Bridge employment refers to part-time work that people take on as they transition from full-time work to retirement. While an encore career connotes a passion project, financial need is often the motivation behind bridge employment. New retirees also take on bridge employment to maintain a sense of structure in their day and learn new things. These jobs usually involve working fewer hours in a less-stressful role. Some evidence suggests that bridge employment eases the emotional transition into retirement, and it can certainly ease financial stress. Encore careers and bridge employment may be on the rise, since the cost of living is rising, but they’ve been popular among Americans since the 1990s. About half of people transition into retirement with a bridge job, whether it be consulting or driving a school bus (or maybe both).
Staying in the workforce isn’t the only way to increase income during retirement. Consider finding a “boommate”--a boomer roommate–to rent a room in your home. Ask around to see if neighbors or friends are in need of something you can offer, whether it’s babysitting, petsitting, garden care, writing, crafts, or art.
Leaning Into a Leaner Retirement Budget
Ironically enough, working is expensive. For those who don’t plan to pursue another job in retirement, there’s a beauty to cutting out some of the work-related expenses they’ve budgeted for years. For example, when you punch out for the last time, you may be able to zero out these line items from your personal budget:
- Multiple vehicles, and the insurance, maintenance, and repairs to go along with them. If your family has gone from two commuters to one or none, selling off a car will translate into thousands in savings per year. Then add in all the money you save not visiting the gas station.
- Expensive new clothes. No need to refresh your wardrobe for the office on a regular basis anymore, or to dry clean those outfits, either.
- Professional fees and training. Depending on the career, professionals may spend hundreds or thousands a year on society memberships, continuing education, and conferences, plus related travel. Retirees can cut those expenses and still keep learning on their own terms–probably for free–through local and state universities, as we talked about in last month’s newsletter.
There are other ways to slim down a personal budget at the start of retirement, too. Making cuts in the biggest categories will have the biggest impacts, which is why experts recommend that retirees first consider downsizing to a smaller home if money is a concern. Other smaller choices can add up, like cooking at home more often and vacationing closer to home.
The experience of retiring prompts many feelings: euphoria, disappointment, boredom, discovery, and passion are just a few of the emotions that may come up during this major life transition. Emotions about money are a significant part of the journey, and it makes sense for stressful emotions to come up during the shift. Planning and a little creativity can help to take the stress out of adjusting to a new budget in retirement.
This article is not intended to be a substitute for professional financial advice from a qualified financial advisor.
Additional sources:
https://www.aarp.org/money/retirement/journey-stages/
https://www.kiplinger.com/retirement/stages-of-retirement-and-how-to-skip-some-of-them
https://hbr.org/2024/05/coping-with-the-stress-of-retirement
https://www.usatoday.com/story/money/2023/10/12/how-long-does-retirement-last/71074947007/
https://www.madisontrust.com/information-center/visualizations/average-retirement-age/
https://econw.com/project/project-spotlight-bridge-employment-and-inequality/
https://mutualreverse.com/expenses-you-no-longer-need-in-retirement/
https://www.aarp.org/money/retirement/what-to-stop-buying.html
