5 tips for managing your finances in retirement

Staying on top of your finances in retirement can help you feel confident in your spending and reduce concerns about outliving your savings. These tips for managing your money as a retiree can help you make financial decisions and give you peace of mind.

Knowing how much money you have and where it’s going is just as important when spending your retirement income as it was when you were saving for it. A budget is a map that shows you where you are financially and can help you chart a path to steer clear of obstacles and stay on track.

If you already have a budget, be sure to review it regularly. Make adjustments as your expenses and priorities change. If you don’t have a budget, start by making a list of all your expenses. You can use our tips and worksheet, an app, notebook or whatever works for you. Include monthly expenses (such as a mortgage and utilities) as well as those that occur quarterly, biannual and annually (such as auto insurance and property taxes). Be sure to include expenses that reflect your lifestyle, such as hobbies, and money toward an emergency fund to cover unexpected costs.

Next, take stock of your income by listing your income sources. This can include withdrawals from retirement and other financial accounts, Social Security benefits, pensions, annuity income, dividends and interest, rental income or other sources. If you’re unsure of what your inflows are, review your financial accounts and statements to check the numbers.

Lastly, consider how your income measures up against your expenses. If you have more money going out than coming in, look for areas in your budget where you could eliminate or reduce costs. For example, you could look for ways to lower housing costs or cut subscriptions you don’t use. If you have a surplus and aren’t sure where that money has been going, consider how you want to put it to work. Then, allocate it in future months. Consulting with a financial professional can help you make these and other important financial decisions.

While the IRS allows you to put off paying taxes on certain tax-deferred retirement savings, eventually the government wants to collect its share. When you reach a certain age, they require you to take mandatory withdrawals each year called required minimum distributions (RMDs). You have to take RMDs from traditional accounts such as 401(k)s, 403(b)s, 457(b)s and IRAs – but not from Roth accounts during your lifetime if you’re the original accountholder.

It’s important to take these because if you don’t begin withdrawing until after your RMD age (see “RMD ages” chart), or if you don’t withdraw enough, you could be liable for a significant tax penalty on what you should have withdrawn plus ordinary income taxes on the full amount. If you don’t need the income when the time comes, consider working with a financial professional to review options for it that could benefit you in other ways, such as minimizing taxes.

RMD ages

You must take your first RMD by April 1 of the year after the year in which you reach your RMD age. Then future RMDs have to be taken by December 31 each year. Keep in mind that if you delay your first RMD until the next year, you’ll need to take two RMDs that year, which could push you into a higher tax bracket.

If you’re still working and contributing to your employer’s retirement plan when you reach the RMD deadline, your adjusted RMD beginning date for that account is April 1 of the year after you terminate employment there.

How do you know how much to withdraw? Your RMD for each account is based on 2 things: Your account balance at the end of the year before and a life expectancy factor that corresponds to your age. To calculate the amount, divide the amount of your balance on Dec. 31st of the year prior by your life expectancy factor as published in IRS Publication 590-B. As long as you have money invested in your current retirement plan, we’ll automatically calculate your RMD and distribute the proper amount to you each year.

Knowing how taxes can impact your retirement income can help you better estimate your available funds and plan ways to reduce what you owe.

Generally, there are 2 main kinds of taxes paid on retirement income:

• Ordinary income tax applies to any earnings from wages and withdrawals from certain types of retirement accounts. It can also apply to a portion of Social Security income and the interest earned on bank accounts.
• Capital gains tax applies to any profit you might make on investments. Generally, you’re only taxed on the gain—or increase in value—from when you bought an investment to when you sell it.

Different kinds of income can also be taxed differently. Some is fully taxable, some is partially taxable and some is tax free (see “Federal taxes on retirement income” chart). 

One way you can potentially reduce your tax bill is by withdrawing your money from retirement accounts in a certain order. Typically, it’s suggested to withdraw from taxable accounts first, then tax-deferred accounts, then tax-free accounts such as Roth accounts. But you may be better off using a different order depending on your situation, and the order that’s best for you could change from year to year. A financial or tax professional can help you decide the most tax-efficient way to withdraw your savings.

To learn more about tax-efficient ways to manage your income, register for our webinar Managing taxes on retirement income.

If you’re currently carrying some form of debt, you’re not alone—retirees today carry more debt than they have in past generations. In fact, households headed by people ages 65-74 carry $45,000 in debt on average.⁶ Making a plan to downsize or eliminate debt can free up money for other expenses and improve your quality of life. Here are ways to consider managing it:

• Avoid taking on new debt by building an emergency fund for unforeseen costs, such as auto repairs or out-of-pocket medical costs
• Consolidate or refinance high-interest debt to lower rates; shop around to compare options and make sure you understand terms and conditions before making any moves
• Find ways to reduce fixed and variable costs each month; you can use the freed-up money to pay down debt
• Consider ways to increase your income so you can pay more toward debt, such as selling items you no longer need
• Consult with a financial professional or reputable credit counselor to create a plan to tackle debt

For more tips about taking control of debt, see 3 steps to improving your debt picture.

[1] Withdrawals before age 59½ are also subject to a 10% early-withdrawal penalty except in certain circumstances.
[2] “How 13 Types of Retirement Income Get Taxed,” Kiplinger (June 30, 2022); withdrawals before age 59½ are generally subject to a 10% penalty.
[3] “How Your Retirement Savings and Income Are Taxed,” Kiplinger (April 28, 2022).
[4] You must have held the account for at least 5 years and be age 59½ or older.
[5] You may also be exempt from state and local taxes if the bond was issued in the state where you live; capital gains from selling municipal bonds may be subject to federal tax.
[6] “Why Retirees Are Carrying More and More Debt,” AARP, https://www.aarp.org/money/retirement/retirees-carrying-more-debt/ (August 2024).