5 Ways Middle-Class Retirees Can Make Their Money Last Longer
Written by
Vance Cariaga
Edited by
Daria Uhlig
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Being middle class doesn’t carry as much financial weight as it used to, which really wasn’t all that much to begin with. The share of U.S. middle-class households has been dropping for decades, as has the percentage of overall wealth middle-class Americans control. Entering retirement with a middle-class income means strategizing over how to make your money last for another 25 or 30 years.
This goes beyond the usual steps of sticking to a budget and not spending recklessly. Just about all retirees should do that, regardless of income bracket. Maintaining a comfortable lifestyle in retirement also means thinking ahead and accounting for many different financial scenarios.
Here are five ways middle-class retirees can make their money last longer.
Downsize to a Smaller Home
This is an obvious step — and an important one. Assuming that you’re an empty nester, there’s no reason for you to remain in a big house with steep utility bills, property taxes and insurance costs. Selling your home and using the profits to buy or rent a smaller, less expensive one can pay big financial dividends later on in retirement.
Diversify Your Portfolio
Just because you’re retired or nearing retirement doesn’t mean you should stop strategizing over your assets and investments. In fact, this is an ideal time to do so. Chris Urban, founder of Discovery Wealth Planning in McLean, Virginia, told AARP that you should “consider using multiple accounts that have different tax treatments.”
For example, if you have a tax-deferred account such as a traditional 401(k), you should also consider opening a Roth IRA. When you start taking withdrawals from the 401(k) you will have to pay taxes on the distributions. But because you paid taxes upfront with the Roth IRA, withdrawals are tax free, which helps offset the 401(k) tax obligations.
Plan For Inflation
One of the biggest mistakes retirees make is not accounting for the impact rising prices will have on their nest eggs. When putting together a retirement budget, factor in a cost-of-living increase every year to ensure your retirement income does not fall behind the inflation rate.
Earn Extra Income
One way to make sure your money lasts longer is to bring in more of it — even in retirement. Numerous part-time jobs and side gigs are suitable for seniors, including librarian technicians, tutors, consultants and substitute teachers. Just keep in mind that if you have not yet reached full retirement age, you will face an earnings test that could reduce your Social Security benefits if your outside income hits a certain threshold.
Maximize Social Security
You can claim Social Security as early as age 62, but doing so means you will get a smaller check. The longer you wait, the bigger your monthly payment. If financially feasible, wait at least until full retirement age to collect benefits. Better yet, wait until age 70 to guarantee the biggest check possible. Research shows that waiting until age 70 to collect instead of collecting at age 62 increases your total monthly payments by more than three-quarters.
More From GOBankingRates
