5 Ways You Must Budget To Build More Wealth in Retirement
Written by
Jake Safane
Edited by
Amber Barkley
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Many people approach retirement trying to draw down their savings without running out of money, but just because this is a common approach, it doesn’t mean you have to watch your wealth decrease. If you budget accordingly, it’s possible to instead build more wealth in retirement.
“It can be very challenging psychologically to go from earning an income and saving and investing to spending down your assets in retirement. This may be one reason people want to continue building wealth in retirement,” said Chris Urban, CFP, founder of Discovery Wealth Planning. “Another reason could be for a legacy goal,” such as to pass on more money to family or charity.
If that appeals to you, continuing to build wealth in retirement can involve a mix of managing your expenses and growing your assets, similar to what you may be doing pre-retirement. Some specific approaches include the following.
Track All Your Expenses
To make sure you’re not in the red with your retirement spending, it’s important to track all of your expenses.
“The best approach to establishing a budget is to spend one month documenting every single penny that is spent,” said Chris Orestis, president of Retirement Genius.
In doing so, look at not just your total spend but your different types of expenses.
“There are three elements of a monthly budget: your fixed costs, such as housing, vehicles, phone and debt; your variable costs, such as food and medical; and your discretionary costs, such as entertainment, dining, shopping and travel,” said Orestis.
“As you track your costs, you will find opportunities to cut waste out of discretionary costs, look for ways to better stabilize your discretionary costs, and better manage your fixed costs by balance-loading the timing of what you pay out over the course of the month. For example, set a car payment for the middle of the month and a rent or mortgage payment for the first” to improve your cash flow, he added.
Get Rid of High-Interest Debt
Part of why you might want to improve your cash flow is to avoid situations where you don’t have enough cash to afford a purchase, so you don’t have to go into debt — particularly high-interest debt that erodes your wealth. And if you already find yourself in a situation where you have high-interest debt, it’s important to tackle that, so you can put more money toward savings and investments.
“Cash flow management is an important part of budget management, and the quicker that debt can be eliminated in a high-interest-rate environment, the sooner you will have more dollars available to put back into your budget,” said Orestis.
That said, don’t assume that all debt is bad. If managed well, it’s possible that low- or no-interest debt can work to your advantage, but you have to be confident in your ability to pay this back on time.
“For large purchases, consider spreading the cost over time by using interest-free payment plans, but make sure you set up automatic payments to pay off the amount within the interest-free period to avoid any penalties and interest charges,” said Orestis.
Invest in Stocks
Building more wealth in retirement isn’t just about cutting expenses. You can also increase the other side of the budget equation by growing your retirement portfolio, which, for some people, could mean investing more in stocks.
“One way to continue building wealth in retirement is to maintain some level of investment in stocks throughout retirement. While it might appear ‘safe’ to be in all bonds or other cash equivalents, retirees will have a challenging time keeping up with inflation if they don’t allocate some of their wealth to the stock market,” said Urban Adams, investment advisor at Dynamic Advisor Solutions.
That said, you don’t have to put all your retirement money in stocks, as that could be more risk than you’re willing to take.
“[One] strategy is to think of the pool of investments for retirement in two buckets. One in bonds, cash, etc., with the equivalent of multiple years of spending. The remainder of retirement assets would be invested in equities for long-term growth. In either strategy, the mix between bonds/cash and stocks will be subject to each retiree’s specific situation,” said Adams.
Adjust Retirement Portfolio Withdrawals
Related to investing in stocks, you also might adjust your retirement portfolio withdrawals if you want to build more wealth in retirement. Rather than, say, taking out $4,000 per month every month, for example, you might take out different amounts based on what’s happening with investment returns.
“It starts with having an annual spending amount. After years where [your] investments grow, stick with that target spending level, possibly a percentage of the total value. After years where the market has regressed, adjust spending down in the year following, perhaps using the same percentage of total value. This could help prevent spending down [your] investments too quickly,” said Adams.
Add Part-Time Income
Lastly, if you want to keep building wealth in retirement, you might add to the income side of the budget equation through part-time work. A recent GOBankingRates survey found that 38% of Americans plan to work in retirement to pay the bills, while 23% plan to do so to stay busy.
“If you need the money, you probably don’t have a choice. However, some people enjoy the social interactions that part-time employment may offer, and so, even if you do not need the money, this should be something to consider,” said Urban. “Of course, you can always try something out and stop doing it if you are not getting out of it what you had hoped and/or expected.”
But if you can find something you enjoy doing, that could give you extra spending money while allowing you to withdraw less from your retirement portfolio and letting that nest egg grow.
Survey methodology: GOBankingRates surveyed 1,395 Americans aged 18 and older from across the country between Feb. 26 and Feb. 28, 2024, asking twelve different questions: (1) Do you have a specific retirement savings goal?; (2) Will you need to work part time in retirement?; (3) In retirement, what type of housing/living situation would/do you you prefer?; (4) How important is/was proximity to family and friends in choosing a location to retire?; (5) Are you considering downsizing in retirement?; (6) Do you plan to or did you move for your retirement?; (7) Where is your ideal location for retirement?; (8) Which of the following will you consider/considered when deciding where to live in retirement? (Select all that apply); (9) What is the MOST important factor in deciding where you want to retire?; (10) What are you looking forward to in retirement?; (11) How much do you plan to spend monthly in retirement (outside of housing/rent)?; and (12) Which of the following countries would you be most interested in spending your retirement?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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