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How to Manage Your Money After You Retire


Retirement is a pivotal turning point that triggers significant financial changes. The steady paycheck you’ve grown accustomed to will be substituted by income from various sources, including retirement accounts, Social Security and other investments. Managing these different streams of income in retirement is critical to maintaining a comfortable lifestyle. Here’s a step-by-step guide for where to put your money after you retire and how to manage it effectively.

A financial advisor can not only help you plan for retirement but also guide you in managing your finances throughout your golden years. Match with an advisor today.

1. Estimate Expenses and Create a Budget

One of the first steps in managing your money in retirement is to estimate your expenses and create a budget. It’s important to understand that your spending patterns may change throughout this stage of your life, which can last decades. While some expenses, like commuting, work-related costs and mortgage payments, may decrease or end altogether, others like healthcare and leisure activities, could increase.

Your choice of retirement lifestyle will leave a significant mark on your budget. For instance, if you intend to travel extensively or jump into pricey hobbies, you’ll need to spare funds for these activities.

But budgeting isn’t rigid – review and revise your financial plan frequently to align with changing preferences and circumstances. In fact, financial experts say that spending habits generally don’t remain static throughout retirement.

To visualize how consumption levels can change, picture a graph in the shape of a smile: Spending levels typically start out higher during the early years of retirement when retirees are more likely to travel and be more active. Consumption typically falls in the middle phase of retirement before rising again toward the end of a retiree’s life as they’re more likely to incur medical expenses and need long-term care.

When creating a retirement budget, think about how much income you’ll need to replace from your working years. Experts recommend replacing between 55% and 80% of your pre-retirement income with sources like 401(k)s, IRAs, Social Security, income from taxable accounts and other assets. Your income replacement percentage will ultimately depend on your lifestyle, spending expectations and how much money you have.

2. Assess Your Income Sources

A woman calculates how much income she'll need to generate in retirement.

After drafting a budget and getting a grasp of your potential income needs, it’s time to explore the income you have available. You may have money invested in different types of assets and accounts, each with pros and cons. Here’s a look at six common sources from where your income may come from:

Retirement Accounts

Many individuals rely on retirement accounts such as 401(k)s and IRAs to fund their retirement. These accounts offer tax advantages and can be funded with pre-tax or after-tax dollars, either providing a tax benefit in the year the contributions are made or in retirement when money is withdrawn. They are designed to grow over time and provide a steady source of income during retirement.

However, keep in mind that most tax-advantaged retirement accounts are subject to required minimum distributions (RMDs) – the annual withdrawals the government mandates you take. RMDs start at age 72 (or 73 if you turn 72 after Dec. 31, 2022). Failing to take RMDs may result in penalties.

Social Security

This government program is a crucial piece of the retirement income puzzle, providing a portion of your pre-retirement income as a monthly benefit once you reach eligible age (usually 62 or older). The amount you receive depends on your earnings history and when you start claiming benefits. In September 2023, the average monthly retirement benefit was about $1,794 or $21,528 per year. Keep in mind that Social Security benefits are indexed for inflation, so they typically increase each year.


Pensions are retirement plans offered by some employers, typically in the public sector and some private companies. With a pension, you receive regular payments in retirement based on your years of service and salary history. Pensions provide a reliable stream of income, but they are becoming less common in today’s workforce.


Annuities are financial products that offer regular payments in exchange for a lump sum or periodic contributions. They can provide a guaranteed income stream for life or a specified period, depending on the type of annuity. Annuities can be a valuable tool for retirees seeking a steady income source.

Cash Savings

Cash savings, including savings accounts and certificates of deposit (CDs), can serve as a readily accessible source of funds in retirement. While they may not offer significant growth potential, they provide liquidity and security, helping cover unexpected expenses.

Experts recommend keeping an emergency fund with enough cash to cover three and six months’ worth of living expenses. Retirees, however, may need more. If the stock market slumps, for example, it could expose a retiree to sequence of returns risk. Drawing from a cash account during market downturns can help you mitigate this risk and preserve the value of your investments.

Other Investments

Other investments encompass a broad range of assets and account types, including stocks and bonds held in taxable brokerage accounts, as well as income-generating real estate. Diversifying your portfolio can help balance risk and potential returns.

3. Balance Income and Growth

The golden rule of retirement is to strike a balance between income and growth in your investment portfolio. After all, the goal is to create a diversified mix of investments that aligns with your financial goals and risk tolerance.

Your investment portfolio’s strategic mix of stocks, bonds and cash is known as your asset allocation. Investing in stocks typically offers the potential for higher returns over the long term but comes with greater volatility. On the other hand, bonds are generally considered more stable and provide a source of regular income but much less growth potential.

As a result, conventional wisdom dictates that your asset allocation should generally be more heavily weighted in stocks the farther you are from retirement and skew more toward bonds and cash as retirement approaches and ultimately arrives.

The Rule of 120 is a simple rule of thumb for finding an appropriate balance of stocks and more conservative assets like bonds. To use this rule, subtract your age from 120. The resulting number represents the percentage of your portfolio that should be invested in stocks, with the remainder allocated to bonds.

For example, if you’re 65 years old, the Rule of 120 suggests that you should have approximately 55% (120 – 65) of your portfolio in stocks and the remaining 45% in bonds. This formula is a starting point and can be adjusted based on your risk tolerance and financial objectives.

4. Withdraw Wisely

Determining how much to withdraw from your various income sources each year is a daunting decision and one of the most crucial ones for managing your finances in retirement. Inflation, RMDs and your expected lifespan will all be crucial considerations in your withdrawal strategy.

Strategies such as the 4% rule are there as guiding principles, but not guarantees. It’s better to tailor a withdrawal rate based on your individual circumstances, including your savings balance, other income sources, desired lifestyle and life expectancy.

While inflation affects all consumers, its impact is especially felt by retirees. That’s why it’s so important to account for inflation in your budget and your withdrawal plan. If you choose to follow the 4% rule, remember that you’ll withdraw 4% of your portfolio in year one and increase your withdrawals in subsequent years to keep up with inflation. Failing to do so could leave you with less money than what your budget requires.

But as we mentioned earlier, your financial needs and goals may evolve during retirement. Consider factors like healthcare expenses, long-term care and potential changes in living arrangements. Flexibility in your withdrawal strategy is vital to adapt to these changing circumstances.

Finally, living longer than expected is a welcome outcome, but it also means that your retirement savings must last longer. To address this, retirees should factor in the possibility of a longer retirement horizon when determining withdrawal rates and potentially withdraw less than they initially expected.

5. Adjust and Rebalance as Needed

A retired couple enjoys a paddle in their kayak.

Keep in mind that retirement is a life phase that could span several decades. Changes in life circumstances mandate that you revisit and adjust your financial plan. This could be an annual review or whenever there’s a significant alteration in your life or the financial market.

For instance, an inheritance, a house sale, or the onset of a costly health condition may necessitate heavy revisions in your budget, portfolio and withdrawal strategy.

Bottom Line

Managing your money in retirement involves several elements, from estimating expenses and creating a budget to identifying income sources, balancing income and growth and setting a wise withdrawal rate. It’s an ongoing process that requires you to stay engaged and make necessary adjustments over time.

Retirement Planning Tips

  • SmartAsset’s retirement calculator can help you estimate how much income you’ll need in retirement and whether your current assets will eventually be enough. Meanwhile, our Social Security calculator can help you project what your future benefits will be based on when you plan to claim them.
  • A financial advisor can help you save and plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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