How To Avoid Overspending in Early Years of Retirement

When you first retire, you might feel an emotional lift from the fact that you no longer have to go to work to support yourself. If you’ve saved and invested wisely, you can now live the rest of your life off your nest egg without worrying about having enough money to cover your bills. The downside of being in this admirable financial position is that it can lead to overspending, particularly in the first few years of retirement. With more free time on your hands, and what might seem like a large chunk of change stashed away in your retirement accounts, it can be easy to end up spending more than you think until you get accustomed to living on a retirement budget.

To prevent yourself from outliving your money, you might have to take certain steps to keep your spending in check during these first few years. Here are some suggestions.

Wait 3-6 Months To Change Your Lifestyle

The feeling of emotional and financial freedom that often accompanies retirement is enough to lead some retirees to spend more than they should. Think about it — you’ve been working hard all your life, living on a budget and saving your money until you reach retirement age. Now, decades later, you are finally there, with nothing but free time on your agenda and what seems like a large sum of money in your bank account. This can actually be a dangerous financial situation for those that are undisciplined with their money. 

Are You Retirement Ready?

To help avoid falling into this trap, it’s wise to avoid making any large, discretionary purchases for at least three to six months after you first retire. You should also refrain from changing your lifestyle too much. In other words, if you went out to a restaurant four times a month while you were working, you shouldn’t view your retirement as a time to eat out four times a week instead. Stick to your regular lifestyle and avoid increasing spending until the excitement you may feel when you first retire subsides a bit.

Build — and Stick To — a Retirement Budget

The budget you had while you were in the working world will no doubt be quite different from the one you have in retirement. But some workers simply keep the same budget or, even worse, don’t make a budget at all once they retire. But it’s arguably even more important to have a budget after you retire than it was when you were still working. This is because you’ll be living off a limited source of funds after you stop working. Whatever you can draw from Social Security and your retirement accounts will be it, so if you spend your nest egg too fast, you won’t have much to live off for the rest of your life. 

Space Out Your Bucket List Spending

It’s completely natural for retirees to have a bucket list of things they want to accomplish now that they have more free time. But simply because you are retired doesn’t mean that you now have carte blanche to do anything you want. You’ll still have to live within your means. This doesn’t mean you can’t go on that trip you’ve always wanted to take to Paris. But it does mean — for most retirees — that you can’t check off Paris, London, Antarctica by helicopter and a round-the-world cruise in the first few months after you retire. As part of your budgeting process, allocate and prioritize the trips or adventures you want to take, and make sure your budget can absorb them. If you don’t have enough retirement savings to take more than one trip per year, you’ll have to stick to your budget and act accordingly.

Are You Retirement Ready?

Cut Expenses/Make Sacrifices

In order to give yourself some wiggle room to exceed your budget in certain areas, such as travel or entertainment, a good strategy is to cut your expenses in other budget categories. If you think you might be susceptible to taking more trips, for example, you might consider acting proactively and reducing your expenses in areas such as eating out or streaming subscriptions. You might also want to go the extra step and see if you can find any savings in what you’re paying for life, health, homeowners and vehicle insurance, for example. If you’re in the position to do so, you might also want to look into refinancing your mortgage at a lower rate, if applicable.

More From GOBankingRates


See Today's Best
Banking Offers