5 Ways Retirees Get Their Money On Track During Financial Literacy Month

Did you know that April is Financial Literacy Month? 

We’re kicking off this exciting season with one of the most frequently asked questions our team at Goepper Burkhardt gets:

How can I get back on track after feeling financially out of control?

The truth is that it’s impossible to be perfect 100% of the time when it comes to spending your money or staying on the path toward your goals. Changing values, unexpected expenses, and countless other things can get in the way of executing your plan. 

Luckily, as is the case with most things, it’s also relatively easy to get back on track. For retirees, in particular, there are five easy steps to take in order to find your financial footing and start making progress again this spring. 

Evaluate Your Spending Plan

Whether you’re 5 months into retirement or you reached the 5+ year milestone, everyone can benefit from taking another look at their spending habits. Typically, whenever someone is starting to feel unsteady about their finances, it’s because they’re dealing with a spending problem. It could be that they’re overspending, or it could be that their spending no longer aligns with their goals and values. 

To evaluate your spending, start by asking yourself a few questions:

  1. Do I feel good about recent purchases? If not, why?
  2. Do I feel like my day-to-day life is fulfilling? If not, could I reconfigure my spending habits to pursue hobbies and goals?
  3. Do I have new income channels that I’m unsure how to manage? This could be Social Security benefits, pension payouts, RMDs, etc.
  4. Have I recently had a change in my spending habits that’s making me feel anxious? 

Answering these questions can help you to better understand your spending, and make a plan for how to adjust if you’re unhappy with where your money is going. 

Make a Plan for RMDs

Retirees who have specific retirement accounts (401k, IRA, etc.) must take an annual Required Minimum Distribution (RMD). In fact, the only retirement savings account that doesn’t require an RMD is a Roth IRA. RMDs start at age 72, and there is a deadline for taking them each year of December 31st. If you miscalculate your RMD and fail to withdraw enough funds from your various accounts, there is a 50% penalty and income tax on the distribution. 

To avoid penalties and unnecessary income taxes, it’s important to calculate your RMD each year. This ensures you’re on track and are withdrawing the minimum required amount from each of your retirement savings accounts. 

If you’re concerned that taking your RMD will push you into a higher tax bracket, now is a fantastic opportunity to dig into some proactive tax planning. For example, if you’re charitably inclined, you may be able to perform a qualified charitable distribution (QCD) in lieu of your annual RMD from your Traditional IRA. The funds that are donated don’t count toward your taxable income.

Protect Yourself and Your Wealth

Ready to go above and beyond? Use Financial Literacy Month as a motivator to learn more about your insurance coverage, and budget accordingly. 

Unsure of how to audit your insurance coverage in retirement? Start by conducting a review of what insurance you currently have available to help identify gaps in coverage. For example, you may already have Medicare, or you may need to plan ahead for Medicare open enrollment later this year.  Alternatively, you may need to look into long-term care insurance options to protect your interests as you age and are more likely to require some kind of long-term care.

You may also find that, during your insurance coverage audit, you have policies you’re willing to drop or that are no longer necessary. Term life insurance, for example, that carries you into retirement may not need to be renewed if you have a large enough nest egg to pay for end-of-life expenses and care for your beneficiaries. 

Look Into Tax-Saving Opportunities

During retirement, there are a number of tax-saving opportunities that can help you reduce your taxable income. For example, if you still earn money through consulting or full-time employment, you can continue to contribute your income to an IRA. These funds are “pre-tax” contributions and can lower your taxable income early in retirement. 

Whether or not you’re employed, you may be able to contribute to an HSA during retirement if you aren’t already enrolled in Medicare to reduce your taxable income. Alternatively, if you are already enrolled in Medicare, you can leverage savings in your HSA to pay for medical expenses. Withdrawals from your HSA are tax-free so long as they’re used for qualifying purchases. 

Another tax-saving move you might consider is to perform a Roth conversion. If you’re retired, but haven’t started your RMDs or collecting Social Security, a Roth conversion can help you to convert a large portion of your nest egg to a savings vehicle that doesn’t require RMDs and continues to grow tax free throughout this season of your life. As an added bonus, Roth IRAs are also an attractive option for estate planning and establishing generational wealth for your beneficiaries.

Check-In On Your Goals

Finally, this Financial Literacy Month is an excellent time to perform a goals check-in. As you move through retirement, you may find that your goals shift and change as you grow. It can be helpful to set aside time annually, or every few years, to assess whether you’re working toward things that you’re excited about. 

For example, you may find that coming out of the global pandemic that you’re more passionate about world travel after having the opportunity limited in recent years. This may change your spending plan, and that’s okay. Doing a brief gut-check on the goals you’ve set previously, and ensuring they’re still in alignment with your values can help to ensure that you feel fulfilled and that you’re living with purpose in your day-to-day life. 

Are you feeling financially “off” as we kick off Financial Literacy Month? We’re here to help. If you’re interested in getting back on track toward your goals, or just want to feel more confident in your financial life, we’d love to hear from you. Schedule a call with us today by clicking here. We can’t wait to hear from you!

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