How to Avoid Burning Through Your Retirement Funds Too Quickly

Retired man and his dog

Being able to retire early is a dream come true. But if you’re not careful, you might find yourself running out of money as time goes on, when you really need it and are unable to go back to work.

The general rule of thumb for retirement planning is that you’ll need enough saved to cover about 80 percent of your preretirement income per year. This will allow you to live your life about the same as you are used to living. The basic idea behind this thought is that your expenses will be reduced based on the fact that you’re no longer working. You won’t be contributing to a 401(K) or social security anymore and your work-related expenses will be reduced. You won’t need to commute daily so your gas, tolls, and parking expenses will be reduced, you won’t need to pay for dry cleaning as often, and you won’t be eating out as frequently.

Other expenses may go up though. For instance, your health insurance premiums may increase, and with spending more time at home, your utility bills may increase as well.

Overspending in Retirement

All of this sounds perfectly manageable, right? Retire, cut expenses, have a few slightly increased expenses, and have plenty of money to live on. Except that a growing number of retirees are spending more in retirement than they did while they were working. Almost half of retired households are spending more in the first two years of retirement before they begin to realize that the money won’t last if they continue spending that way and start cutting back.

You might be asking yourself, with all of these cuts, why are they spending more? There are a few reasons why this is happening.

Playing Catch-up

Many retirees start to splurge on all the things they weren’t able to do while working. They are taking big vacations and doing more costly activities. On average, this group devotes 25 percent of their income to travel and experiences.

Home Makeovers

Some retirees are becoming homebodies and spending approximately 54 percent of their income on housing expenses like maintenance, repairs, renovations, and furniture. They are also relocating and buying new homes which means they have a new mortgage and possibly higher property taxes and homeowner’s insurance.

Health Scares

There is also a small percentage of retirees who experience higher healthcare expenses in retirement due to injury or illness, costing them an average of 28 percent of their retirement income per year.

Read more: How To Manage Debt During Retirement

Avoiding Retirement Burnout

However, the smart retiree is the one who plans for retirement by paying off their mortgage and lowering expenses before they retire. They also start spending more frugally by shopping at big box stores and looking for low or no-cost activities to participate in. If they want to travel, they search out travel groups that provide discounts. They make any necessary large repairs or renovations before retirement and pay them off. These are the retirees who are able to manage on 80 percent of their preretirement income.

Most of the excess spending in retirement seems to come from lifestyle choices, like a new home or travel, instead of basic and necessary spending like food and health care.

The best option for keeping your retirement funding safe is work to reduce expenses before retiring and during the first several years. Once you know how much you can actually get by on in retirement, you’ll be in a better position to make responsible choices for your future.

If you need help building a sustainable budget for retirement, don’t hesitate to connect with a budgeting expert from MMI. Budget counseling is free, confidential, and available 24/7.

Tagged in Retirement, Savings accounts, Budget tips, Seniors

Emilie writes about overcoming debt, while balancing trying to eat healthy, stay fit, and have a little fun along the way. You can find more of her work at