Smart Spending + Saving is the Key to a Safe Retirement

September 29th, 2020

Michael Macke, CFP®

You’ve probably heard a lot about saving for retirement, putting money into your 401(k) or IRA or socking money away in investments. But when was the last time you thought about how much your spending could impact your future?

Most retirees and those nearing retirement say that their top worry is not having enough money to last their lifetime. They worry they haven’t saved enough. And it’s a valid concern, especially as we rely less on Social Security benefits and more on personal savings during our retirement years.

However, a successful retirement isn’t just about how much you’ve saved – it’s also about how much you spend. We all probably know someone who makes lots of money but lives well below their means, and vice versa. The ones who spend more than they make are often worried, stressed and feel out of control with their finances.

Wouldn’t you rather avoid being the person who’s worried about money all the time? If so, it starts with good budgeting, which many Americans avoid. But when you’re getting close to retirement, knowing how much money you spend and where it goes can be key in creating your plan for the future.

Here are a few steps you can take as you start employing “smart spending” in your life:

Start tracking your spending while you’re still working.

Want a basic idea of how much money is going out the door? Simply subtract how much you save from how much you earn. However, to get a much more accurate handle on your spending, track every penny – income and outgo – for the next few months. This will give you a good idea of what you spend on monthly bills, groceries and eating out, personal care, and other everyday expenditures.

Set short-term and long-term goals.

What do you want your life to look when you retire? What will it cost to make it a reality? While you might be able to cut back on some expenses when you quit working, others – such as health care – will increase as you get older.

If you haven’t saved enough for your desired retirement lifestyle, it’s never too late to make progress. Find areas where you can cut back spending and put the saved money in your retirement accounts. But don’t cut everything that gives you joy now; your present life is just as important as your future life. Instead, pick and choose what expenses can stay or go.

Work as a team.

Money is one of the biggest sources of conflict in every marriage. It’s often because one spouse doesn’t know what things like groceries or gas truly costs, or because what’s one important to spend money on for one spouse isn’t important to the other. If you’re married, both of you should be on the same page about how you spend and save for the future.

A budget works for everyone, whether you’re in your 20s or your 80s. It can help you get your money under control and provide a safety net for your later years. And it can also show you that maybe you’re in better financial shape than thought, easing your concerns about retirement.