Retirement Expenses: How to Save for Large Purchases
Retirement is a time to enjoy all that you’ve worked hard to accumulate, but that doesn’t mean budgeting is easy. In fact, this period of life requires diligent planning and responsible spending to ensure that your retirement income lasts. Saving for large purchases on a fixed income is possible with careful planning and budgeting, and here we’ll show you where to start. Whether you’re saving for a big vacation, a new car, or your own walk-in tub, here are some ways to save for well-deserved, large purchases during retirement.
How Seniors in Retirement Can Budget for a Large Purchase
With diligent planning and budgeting, you can save for large retirement expenses. Here a few of our favorite budgeting tips:
Have an Emergency Savings Account First
Before you start saving for a large purchase, first make sure that you have an adequate emergency savings account in place. The amount will vary depending on your income and needs, but make it a goal to have at least 3 months of expenses covered. This emergency account shouldn’t be touched unless it’s absolutely needed. This will give you the flexibility to start saving for supplemental expenses.
Set Small Goals
You might be overwhelmed with the idea of saving a couple thousand dollars for your large purchase, but by breaking it into smaller goals, you’ll stay focused for the long terms. Neuroscience actually shows us that we can manipulate the release of dopamine in our brains by setting more, short-term goals rather than one long term one goal. This is because the brain releases dopamine every time we succeed at doing something.
Setting small goals when saving for your large purchase could be putting aside a set amount every month, or saving a portion of each income check. These little wins will make you feel great and get you closer to your goal.
Make Saving Easy
One of the hardest things about saving for a large purchase is that you might forget to put money away or spend it on something else. Take the guesswork out of saving by automating your deposits. There are many safe, secure websites and applications that make saving and investing easy, including:
- Qapital – Qapital makes it easy to set specific goals and you can make rules that apply to those goals. For example, you can create a “set it and forget it” rule where a certain amount of money goes into your goal every month, you can reward yourself and put money away by working out or spending less at your favorite store, or you can set round-up goals, where the app rounds up to the nearest $1 or $2 for every purchase you make and saves the differences. You can even go in on goals with other users, such as a spouse or friend, to save for goals together.
- Robinhood – Even if you work with a financial advisor, Robinhood is an easy way to invest without even thinking about it. Invest in stocks, ETFs, options, and more right from your phone or computer. You can cash out your earnings at any time for your next big purchase.
- Digit – Digit makes it easy to “save money, without thinking about it.” It uses an algorithm to determine how much you can afford to save and it takes the money directly out of your bank account, sometimes without you even noticing. You can adjust how conservative or aggressive you want it to be based on your budget and goal.
- Acorns – Acorns is another investment app that invests your “spare change” by rounding up your transactions to the nearest dollar. You can dictate how aggressive you want your portfolio to be and even with the most conservative choice, you’d be surprised how much a little investing can add up. You’ll have enough saved for your large purchase in retirement in no time!
All of these apps are secure and don’t have access to your personal bank account information, such as your account number. They work by linking with your online account.
Reducing Your Retirement Expenses
In addition to setting up some savings goals, another way to save for a large purchase in retirement is to reduce your retirement expenses. Here are some budgeting tips that may help you free up some cash flow:
- If possible, downsize (or as some older adults say, “rightsize”) your home. The costs to live in and maintain a larger home add up and if you don’t have any kids or grandkids living with you, you may be able to cut your retirement expenses by moving somewhere a little smaller.
- Avoid steep tax penalties by making the required withdrawal amounts from your retirement accounts.
- Minimize your tax bill by spending money outside your retirement accounts first. Because you don’t have to pay income tax on the funds in your 401(k) and IRA, use the gains outside of your retirement accounts first because they are taxed every year.
- If you can, try to only use one car for your family. Car insurance, gas, and registration adds up and many older adults in retirement find that they only need one car.
- Signing up for Medicare can also save you money. You can sign up three months before your 65th birthday and this open enrollment period lasts seven months. After that, you may have to pay a premium increase each year that you delay enrollment.
- Consider moving to an area with lower taxes and more affordable housing to make your retirement dollars stretch even further. The money you save by living in a more affordable area can be spent on vacations or other large purchases.
- Make sure you’re taking full advantage of the many senior discounts available for travel, beauty, insurance, and more. These small discounts here and there can really add up.
Whether you’re saving for a walk-in tub, a vacation with the whole family, or a special something for yourself, these tips on how to budget and save for large retirement expenses can help. The items above are general guidelines and information, and do not constitute financial advice. You should consult a professional advisor before making any tax, legal, financial or investment decisions.