One factor to consider is how to minimize taxes in retirement. Without employing some key strategies, taxes can quickly eat into your retirement savings.

How much of an impact can taxes have on your retirement income? Is it even something you should be worried about? Are there ways to save on taxes in retirement or at least minimize your tax burden? What are the best strategies?

These are some of the questions we will aim to answer in this article about the best retirement tax planning strategies and more.

Taxable vs. Non-Taxable Income in Retirement

Before discussing the various tax-saving strategies, it’s important to understand the taxable and non-taxable income you may receive in retirement.

Taxable Income Sources

Here are some of the most common taxable income sources you may receive in retirement:

• Pension plans. A pension plan is a retirement plan that an employer sponsors. The plan is funded by contributions from the employer, employee, or both. When an employee retires, the pension plan provides a regular income stream to the retiree. Pension plans are taxable in retirement because the contributions made by the employer and employee were not taxed when they were made. Therefore, when the retiree receives income from the pension plan, they have to pay taxes on it.
• Traditional 401(k) distributions. Traditional 401(k) distributions refer to the money you withdraw from your 401(k) retirement savings account established by your employer. When you contribute to a traditional 401(k), the money deposited is made pre-tax like a pension plan. When you withdraw the money during retirement, it is considered taxable income because you did not pay taxes on the contributions when you made them. This means that you will have to pay income taxes on the amount of money you take out of your traditional 401(k) account, which can impact the amount of money you receive in retirement.
• Traditional IRA distributions. Similar to a traditional 401(k), a Traditional IRA (Individual Retirement Account) is a type of retirement savings account allowing you to contribute pre-tax dollars. Your contributions to the account and any earnings and gains grow tax-free until you withdraw the money during retirement. However, when you withdraw money from a Traditional IRA in retirement, it is considered taxable income because you did not pay taxes on the contributions when you made them. This means that you will have to pay income taxes on the money you take out of your Traditional IRA account.
• Rental income from real estate investments. Rental income from real estate investments refers to the income received by an individual from renting out a property that they own. It can include rent payments from residential or commercial properties. This rental income is taxable because it is a form of earned income.
• Capital gains from the sale of investments. Capital gains refer to the profit made on the sale of an investment, such as stocks, bonds, or real estate. Capital gains are taxable because they are considered a form of income.
• Annuity payments. Annuities grow tax-deferred, but you will be required to pay taxes on any money you withdraw or receive from them. The amount you will pay in taxes depends on the type, fund source, and purpose of the annuity. For annuities purchased with post-tax dollars, you will only pay taxes on any earnings incurred.
• Part-time work or self-employment income. Part-time work or self-employment income is taxable because it is considered a form of earned income.
• Social Security benefits. If your income exceeds a certain threshold. Whether or not your Social Security benefits are taxable depends on your income level. Some of your Social Security income may be subject to federal income tax if your income exceeds a certain threshold. According to the Social Security Administration (SSA), taxes must be paid on Social Security benefits if an individual’s combined income is more than $25,000 per year or $32,000 for those who file a joint return.

Non-Taxable Income Sources

Non-taxable income sources in retirement can include:

• Roth IRA Distributions. Contributions to a Roth IRA are made from after-tax income. This means that when it comes time to withdraw from this account in retirement, the income will be tax-free.
• Roth 401(k) Distributions. Similar to a Roth IRA, if you contribute to a Roth 401(k) account, your retirement withdrawals will be tax-free since the contributions come from after-tax dollars.
• Life Insurance Proceeds. If you receive a death benefit payout from a life insurance policy, it is typically not taxable, according to the Internal Revenue Service (IRS). One exception is if you have an insurance product that earns interest, you will pay taxes on any earned interest. Consult your tax accountant about other possible exceptions.
• Gifts and inheritances. Any gifts or inheritances you receive from family members or friends are typically not taxable, although there may be some exceptions.
• Municipal bonds. Interest earned on certain municipal bonds is typically not taxed federally, although you may have to pay state taxes. According to Schwab, even though interest earned on municipal bonds may not be subject to federal income taxes, it may be subject to other types of taxes.
• Some Social Security benefits. As explained above, depending on your income level, some or all of your Social Security benefits may be tax-free.
• Health savings account (HSA) withdrawals. If you use funds from an HSA to pay for qualified medical expenses, the withdrawals are typically tax-free.

Tax Saving Strategies During Retirement

Choose a Roth IRA over a Traditional IRA or Do a Conversion

While a traditional IRA gives you tax savings during your working years, a Roth IRA will provide you with tax-free income in your retirement years.

“Keep your savings in a Roth IRA so you can enjoy tax-free growth and withdrawals in retirement,” said Ann Martin, Director of Operations of CreditDonkey.

If you already have a traditional IRA or 401(k), Certified Financial Planner Kenny Jung recommends converting it to a Roth IRA or Roth 401(k), also known as a Roth conversion.

“Converting a traditional IRA to a Roth IRA can be strategic, particularly in years when your income is lower,” Jung explained. “This move requires paying taxes on the converted amount at your current income tax rate, but future withdrawals from the Roth IRA would be tax-free.”

Use a Health Savings Account (HSA)

Put money in a health savings account (HSA) for your medical expenses.

“HSAs are triple-tax advantaged: contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are also tax-free,” Jung said.

“After age 65, funds can be used for any purpose without penalty, though non-medical withdrawals are subject to income tax,” he added.

Use Strategic Withdrawal Strategies

There are several withdrawal strategies you can use for withdrawing your retirement funds.

This is a category worth exploring to determine the strategy that will work best for your situation.

The first withdrawal strategy we will cover is considered the conventional wisdom among financial planners and retirement experts. In this strategy, you would withdraw money from your retirement accounts in the following order:

• Taxable accounts. This includes the following types of accounts: checking, savings, brokerage accounts, and employee stock plans.
• Tax-deferred accounts. This includes traditional IRAs and 401(k)s.
• No tax accounts. This includes Roth IRAs and Roth 401(k)s.

Debra Greenberg, an investment expert with Bank of America, told Merrill Lynch that it might be wise to hold off on tapping into such individual retirement accounts while allowing them to continue to grow.

“If you’re not accessing your retirement funds, they’re still growing tax-deferred,” Greenberg said.

However, there are some alternative strategies.

For example, financial planner Devin Carroll recommends factoring in the tax implications of how much money you withdraw by aiming for an average tax rate of about 12 percent throughout your retirement.

“Instead of just taking from one bucket until it’s empty and moving onto the next bucket, we’re going to solve for an average tax rate,” Carroll explained on his YouTube channel. Once you reach the 12 percent tax rate, you will supplement any additional needs by withdrawing from your Roth accounts.

To demonstrate how this would work, he uses an example of a couple with the following accounts and Social Security payments:

• IRA: $1 million
• Brokerage Account: $400,000
• Social Security for Spouse 1: $3,300 per month
• Social Security for Spouse 2: $1,650 per month

Carroll says they will pay approximately $300,000 in taxes throughout their retirement if they follow the conventional withdrawal strategy. If they follow this alternative approach, the tax burden is closer to $150,000.

It is recommended that you seek guidance from a financial advisor or tax professional to help you develop a financial plan that will work best for your individual situation.

Tap Into Your Home Equity

One way to access tax-free funds in retirement is to tap into your home equity. This might be especially beneficial if a large share of your wealth is tied up in your home.

Since money received from a home equity loan, a home equity line of credit (HELOC), and a reverse mortgage is from a loan, it is not considered income and is not taxable. One advantage to using a reverse mortgage loan is that it will pay off your current mortgage if you still have one, and it does not require monthly mortgage payments* to pay it back. This can eliminate what is typically the largest bill for most homeowners.

You also have several options for receiving the funds: a lump sum payment, monthly installments, and a line of credit.

Retirement expert Dr. Wade Pfau says that using a reverse mortgage earlier in retirement may be advantageous rather than waiting until you’re in a desperate situation.

“First, coordinating retirement spending from a reverse mortgage reduces strain on the investment portfolio, which helps manage the risk of selling assets at a loss after market downturns. Reverse mortgages can help sidestep this risk by providing an alternative source of retirement spending [sic.] (loan proceeds) after market declines, creating more opportunity for the portfolio to recover,” Pfau explains.

“The second potential benefit of opening the reverse mortgage early—especially when interest rates are low—is that the principal limit (the overall eligible amount consisting of any loan balance and remaining line of credit) that you can borrow from will continue to grow throughout retirement,” he adds.

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.

Retirement Tax Planning FAQs

At what age do you stop paying taxes on retirement income?

There is no specific age at which individuals stop paying taxes on retirement income altogether. Tax obligations on retirement income depend on the sources of that income and the tax laws in effect at any given time rather than the taxpayer’s age.

How can I reduce my taxable income while supporting charitable efforts?

One way to reduce your taxable income in retirement is to support charitable efforts. One effective method is to make charitable donations directly from your IRA through a Qualified Charitable Distribution (QCD).

The IRS allows you to make a qualified distribution to a charity by transferring up to $100,000 annually for individuals or $200,000 for couples directly to a qualified charity from your IRA, bypassing your taxable income and thus lowering your overall tax liability. This approach is particularly attractive because it can also count towards your Required Minimum Distributions (RMDs) once you reach the age where RMDs are mandatory.

What is the Required Minimum Distribution, and How Does it Affect Your Taxes?

The Required Minimum Distribution (RMD) is a mandatory annual withdrawal that individuals must start taking from their retirement accounts, including traditional IRAs, 401(k)s, and other tax-deferred retirement plans, typically starting at age 73 (as per current IRS rules). The RMD age increased from 72 to 73 in 2023 as dictated by the SECURE Act passed in 2022.

RMDs are significant for tax planning because the withdrawn amounts are taxable as ordinary income in the year they are taken. This can increase your annual taxable income and push you into a higher tax bracket, affecting your overall tax liability.

Failing to take an RMD incurs a steep penalty, amounting to 50 percent of the amount required to be withdrawn. Retirees must manage these distributions carefully to optimize their tax situation.

Note that there is no RMD for a Roth account, until the death of the account owner, according to the IRS.

What are some tax-saving moves to make before I am required to take distributions?

Before you’re required to take distributions, such as Required Minimum Distributions (RMDs), from retirement accounts, several tax-saving strategies may be advantageous.

Consider converting at least part of your traditional IRA or 401(k) to a Roth IRA account, where distributions are tax-free. However, the conversion itself is taxable in the year it occurs. This move can be particularly strategic in years when your income is lower, potentially reducing the tax impact.

Additionally, investing in HSAs, if eligible, offers triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses, which can be a valuable tool in retirement.

Does it make a difference what state you live in?

If moving is an option, look for a state that won’t add an additional tax burden to your federal income taxes. Here are the 13 states that won’t tax your retirement income because they don’t have income taxes:

• Alaska
• Florida
• Illinois
• Iowa
• Mississippi
• Nevada
• Pennsylvania
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Learn more about states that won’t tax retirement income here.

Final Thoughts

Making a decision about the best way to minimize taxes in retirement will depend on the types of retirement accounts and assets that you have. The good news is that there are several strategies that you can employ.

To determine what makes sense for your individual situation, it is recommended that you consult your financial advisor or tax accountant.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Sources:

https://www.annuity.org/annuities/taxation https://faq.ssa.gov/en-us/Topic/article/KA-02471

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insurance-proceeds

https://www.ml.com/articles/taxes-in-retirement.html https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

https://www.irs.gov/newsroom/qualified-charitable-distributions-allow-eligible-ira-owners-up-to-100000-in-tax-free-gifts-to-charity

Even if you have a decent nest egg, your income may not be what it was during your working years.
But the good news is that your expenses won’t be what they were either.  

The transition into retirement often prompts a reassessment of needs, from transportation to housing and more.  

Here are some expenses you may be able to cut or at least significantly reduce in retirement. 

Commuting Costs 

One of the first expenses that retirees can cut from their budgets is the cost of commuting to and from work.  

“After retirement, daily commuting expenses are drastically reduced, as you no longer need to travel to work,” said Jonathan Feniak, General Counsel at LLC Attorney. 

The cost of commuting is often a significant yet often overlooked portion of a worker’s budget. These costs encompass not just the obvious expenses like fuel or public transportation fares but also extend to wear and tear on personal vehicles, periodic maintenance, toll fees, and even the occasional parking charges for those driving to work. 

According to a study by Clever Real Estate, commuters in the United States spend an average of $8,466 on their commute each year, which comes out to about 19 percent of their annual salary.  

For public transit users, the expense might include monthly passes or daily fares, which can add up significantly over time.  

Upon retirement, these expenses can largely disappear from one’s budget, presenting an opportunity for reallocating funds towards other interests or savings. 

Work-Related Costs 

Commuting costs aren’t the only expenses that end when you stop working.  

“There are also plenty of expenses we face when working we don’t really notice, like extra clothing costs for work attire, makeup, lunches out, coffee runs, pet care, and even rent or mortgage costs if your work keeps you close to an expensive area,” said David Ciccarelli, the CEO & Founder of the vacation rental platform Lake and a graduate of Harvard Business School. 

Professional attire and grooming, for instance, can take a considerable slice of the budget. Suits, dress shoes, accessories, and the costs associated with maintaining such a wardrobe (dry cleaning, alterations, etc.) can add up. 

As retirees transition from their working lives, the cessation of these work-related expenses presents an opportunity not just for financial savings but for a reevaluation of lifestyle choices and priorities.  

The funds previously allocated to professional necessities can now be redirected towards fulfilling personal aspirations, contributing to a richer, more satisfying phase of life. 

An Additional Car 

For many working couples, maintaining two vehicles was a necessity, accommodating differing work schedules, work locations, and other commitments.  

However, as the daily grind gives way to a more relaxed retirement lifestyle, the need for multiple vehicles can diminish significantly, presenting an opportunity for substantial financial savings and lifestyle simplification. 

The costs associated with keeping an additional car go beyond the initial purchase price or monthly payments. To keep a car, you also must pay for insurance premiums, registration fees, regular maintenance, repairs, and fuel. 

According to MoneyGeek.com, Americans spend an average of $10,728 on their cars each year, which comes out to almost $900 per month. 

In retirement, when income typically shifts from salaries to fixed retirement savings and pensions, reducing unnecessary expenses becomes even more crucial. 

This choice will depend on individual needs and preferences. If you are unsure if this is a move you want to make, give it a test run for a week or two before making a permanent decision.  

Mortgage Payments 

As individuals transition into retirement, the question of housing takes on new significance. 

For many, the dream is to enter retirement with a paid-off mortgage, getting rid of what is typically one of the largest monthly expenses.  

“If you’ve managed to pay off your mortgage by the time you retire, this can be one of the most substantial reductions in your monthly financial obligations,” says Dennis Shirshikov, head of growth at GoSummer.com and former Professor of Economics at City University of New York.  

But what if you’re going into retirement with a mortgage? What options do you have? 

Here are some options for reducing or cutting this expense from your monthly budget: 

Downsizing 

For many retirees, downsizing to a smaller home can offer numerous benefits and savings. A smaller space often means lower utility costs, less maintenance, and potentially lower property taxes.  

“Moving to a smaller house or a less expensive area can reduce costs related to mortgage, property taxes, and maintenance,” says Feniak. 

For those with equity in a larger family home, selling and moving to a smaller property can free up significant capital to bolster retirement savings or fund other retirement activities. 

Relocating 

Retirement also offers the freedom to relocate without the constraints of job locations or school districts.  

Some retirees may choose to move to areas with a lower cost of living to stretch their retirement savings further. 

Aging in Place 

Many prefer to stay in their current home in the community they know and love.  

If you want to stay in your current home but you still have a mortgage, one option to consider is a reverse mortgage loan.  

A reverse mortgage pays off and replaces your current mortgage, and it does not require monthly mortgage payments to pay it back if you live in the home full-time and meet certain criteria.  

A reverse mortgage also allows borrowers to receive additional funds as a lump sum, monthly installments, or a line of credit.  

A reverse mortgage can also be used to purchase a new home for those who want to downsize or relocate.  

Choosing the right housing in retirement is about finding the right balance between comfort, convenience, and cost.  

Life Insurance Premiums 

Another expense you may be able to cut is life insurance.  

Life insurance is primarily designed to provide financial protection for dependents in the event of the policyholder’s untimely death and may not serve the same purpose for retirees as it did during their working years. 

Many retirees may find that the financial obligations life insurance was initially intended to cover no longer apply. 

“If the primary purpose of your life insurance was to replace income or pay off debts that are no longer concerns, maintaining those policies might not be necessary,” explains economist Dennis Shirshikov. 

The decision to cut life insurance will depend on a variety of factors.  

First, if retirement savings are sufficient to support a surviving spouse or other dependents, the need for life insurance might be significantly reduced or even eliminated. 

Second, the type of life insurance policy you have can also influence the decision to keep it or let it go in retirement. For example, if you have a term life insurance policy that provides coverage for a specified period, it may simply expire if it is still in effect as you approach retirement.  

However, if you have a whole life insurance policy or another type of permanent life insurance, it can accumulate cash value over time, presenting retirees with options like cashing out the policy, converting it to an annuity for steady income, or maintaining it for the death benefit. 

Third, you will want to consider the cost. Life insurance premiums can be notably high as one ages, making it potentially cost prohibitive for those on a fixed income. 

Child-Related Expenses 

For many individuals, the years leading up to retirement involve juggling work with the considerable financial demands of raising children, including childcare, which can be one of the most substantial household expenses. 

As retirees enter this new chapter, the direct costs associated with raising children — such as daycare fees, after-school programs, sports, and other extracurricular activities — typically fade away.  

As children age, this typically also means driver training, vehicles, car insurance, college, and more. 

These expenses can range widely depending on location and the number of children, but they invariably contribute to a significant portion of a family’s budget.  

Eliminating these costs in retirement can free up substantial financial resources, providing more flexibility in budgeting for other priorities. 

Lower Taxes 

The transition into retirement often brings about a notable shift in tax obligations, with many retirees finding themselves in a lower tax bracket than they were in their working years.  

This reduction in taxable income stems from moving from salary-based earnings to income sources like Social Security benefits, pensions, withdrawals from retirement accounts, and potential investment income.  

Understanding how these changes affect tax liabilities and employing strategies to minimize taxes can significantly enhance financial security in retirement. 

Strategically planning withdrawals from retirement accounts can help manage tax liabilities.  

For example, knowing when to tap into taxable and tax-deferred accounts can significantly affect tax outcomes. Roth IRA withdrawals, for instance, are tax-free in retirement because the contributions are made from after-tax income, while withdrawals from traditional IRAs and 401(k)s are taxed at current income tax rates. 

If you are looking to relocate, it’s also worth looking for a state that doesn’t tax retirement income or Social Security benefits.  

“A retired homeowner can also facilitate the senior freeze tax, which lets senior Americans postpone their property taxes until death,” according to Ethan Keller, president of Dominion. “Texas allows this special tax break, and retirees of 65 and older with a limited income can take this advantage for their primary residence.” 

Training and Educational Expenses 

Several jobs and careers require continuing educational training for professionals to keep their licenses in that field and stay up to date on industry advancements. This includes doctors, lawyers, pilots, nurses, teachers, and many in the financial sector.  

“In most cases, retirees no longer need to invest in professional development or further education,” says attorney Jonathan Feniak. 

Continuing education for professionals usually entails registration fees, travel expenses to conferences or seminars, and sometimes membership dues for professional organizations. These activities can be costly, often running into thousands of dollars annually, depending on the industry.  

In retirement, these costs are no longer required, freeing up funds for other uses or savings. 

Retirement Savings Contributions  

When you are working, one expense you likely have is saving for retirement. In retirement, the shift moves from saving to using those retirement savings. 

The typical recommendation is that individuals save 10 to 15 percent of their income.  

For example, if an individual was contributing 15 percent of a $60,000 annual salary to a retirement plan, they would be setting aside $9,000 per year. Upon retiring and stopping these contributions, that $9,000 per year stays in their pocket. 

The new priority once you hit retirement is no longer saving but carefully managing your cash flow and coming up with a withdrawal strategy that won’t cause you to deplete your retirement savings prematurely.  

A financial advisor can help you understand the best withdrawal strategy to make sure that your retirement savings last. 

Travel Costs 

One of the upsides to retiring is that you will have more time to travel than you did during your working years. Because of this, you may assume you will be spending more money on travel, but this is not necessarily the case.  

“As retirees do not have a work schedule, they can travel during off-peak seasons, benefiting from lower airfares and hotel rates,” explained financial advisor Ethan Richardson. 

“A strategic travel plan can result in significant savings and a more enjoyable travel experience,” Richardson added.  

When you are working, especially if you still have children at home, that means that you are restricted to traveling during school breaks as well as other timing restrictions you may have because of your job.  

To get an idea of how much you can save in travel, GOBankingRates says you can save 40 to 60 percent if you travel to the Caribbean or Mexico from June through November. 

Want to travel to Europe? Airfare and hotels are also significantly lower in the winter than in the summer, according to GOBankingRates. 

Food and Dining Out 

When you are working, there are simply more opportunities to spend money eating out, getting cocktails with co-workers after work, or picking up the much-needed afternoon cup of coffee.   

For example, if a worker spends $10 each workday on lunch, this amounts to $50 per week or about $200 per month.  

At the end of a long workday, you may feel more tempted to pick up dinner than cook at home.  

“With more time to plan and prepare meals at home, retirees often find they spend less on dining out and convenience food,” says economist Dennis Shirshikov. 

“The shift towards home-cooked meals can lead to both healthier eating habits and savings,” he added.  

The savings from buying groceries and cooking meals at home compared to eating out can be substantial. 

Final Thoughts  

Retirement presents several opportunities for cutting costs as you transition from your working life to enjoying your golden years.  

These potential cost savings should make monthly budgets significantly more manageable even if you are living on a fixed income.  

By carefully reallocating resources that were once dedicated to these now unnecessary expenses, retirees can enhance their financial stability and focus on personal enrichment and enjoyment in their later years.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Two years ago, Americans spent about $1,000 less per month on food, shelter, and energy costs than they are today, according to calculations by Fox Business.  

If you are still in your working years, you can offset costs by working additional hours, asking for a raise, or starting a side hustle. But those strategies may be less doable if you are in your retirement years. 

We talked to several experts to get their take on the best strategies that retirees can use to manage the increased costs that come with inflation, and this is what they had to say.  

Adjust Your Investment Portfolio 

“It’s not just a buzzword; diversification is key,” said True Tamplin, founder of Finance Strategists. “Inflation can eat into the purchasing power of your money, so having a mix of investments helps.” 

“Think beyond just stocks and bonds. Including assets like real estate or commodities in your portfolio can be a smart move,” he explained. 

“These often have a different reaction to inflation compared to traditional stocks and bonds, sometimes even benefiting from it. For instance, real estate often appreciates in value during inflationary periods, offering a potential hedge,” Tamplin added.  

Andy Chang of The Credit Review also recommends investing in Treasury Inflation-Protected Securities (TIPS). Chang says TIPS “offer a reliable way to protect your retirement savings from inflation. Their principal is adjusted semiannually based on inflation, protecting the buying power of your money.” 

Dennis Shirshikov, Head of Growth at Awning.com and former Professor of Economics at City University of New York, also recommends investing in TIPS because they are “specifically designed to combat inflation.”  

“Additionally, investing in sectors that typically benefit from inflation – think commodities, real estate, or even certain technology sectors – can provide a hedge against the diminishing value of money,” Shirshikov said.  

Rent Out Part of Your House  

Lyle Solomon, principal attorney at Oak View Law Group, a personal finance expert and advisor with 30 years of experience, says that one secondary source of income that retirees should consider is renting out a room in their house.  

“If you have your own property, you can rent it during your retirement years or even before,” Solomon explained. “The rental prices mirror the local inflation, so you can rely on it as a reliable inflation hedge.”  

“Even if you have a spare bedroom or a part of your property unoccupied, you can rent the space out. If your location is good, you will get many interested tenants,” he added.  

Get Help from Your Home Equity 

Given that real estate has seen a significant appreciation in recent years, Solomon says to use that increase in equity to your advantage.  

“You should consider using your home equity for extra cash flow during your retirement years,” he explained.  

“Take the help of real estate professionals or your financial advisor to research the value of your property. Then, with their help, review what options you have to access this funding to make up for the higher living expenses during inflation,” he added.  

There are several ways to access home equity, including a home equity line of credit (HELOC), a home equity loan, or a cash-out refinance.  

However, one option that is only available to older homeowners is the home equity conversion mortgage (HECM), which is commonly known as a reverse mortgage loan. This option eliminates monthly mortgage payments while also providing access to that equity in the form of a lump sum payout, monthly installments, or a line of credit. 

Delay Social Security Benefits 

Americans can start collecting Social Security benefits when they turn 62, but their monthly benefits increase if they wait until age 70, the last year they can start claiming benefits.  

“Every year beyond your full retirement age that you delay benefits, they increase by up to 8% until you reach 70. That locks in a higher lifetime income adjusted for inflation as the cost of living rises,” said Laura D. Adams, MBA, personal finance author and expert and host of the Money Girl Podcast. 

Those who claim benefits at age 62 will face a penalty, which currently amounts to a 30 percent decrease in monthly benefits compared to what they would receive if they waited until they reached full retirement age. Full retirement age starts at age 66 or 67, depending on the year you were born.  

But the Social Security Administration says that if you wait until age 70 to claim your benefits, you may see a 77 percent increase compared to what you would receive at age 62.  

The SSA offers this example: if you receive $1,000 per month at full retirement age, you will only receive $700 if you start receiving benefits at age 62. If you wait until you are 70, you will receive $1,240. That’s a $540 difference.  

The other advantage to waiting until you reach full retirement age is that you can continue to work without it affecting your Social Security benefits. Whereas, if you claim your benefits at 62 or before full retirement age and make more than a certain amount, the SSA will withhold some of your benefit payments. 

Relocate 

In 2023, there was a 44 percent increase in retirees who decided to move compared to 2022, according to data from the U.S. Census Bureau.  

The top two states that retirees moved to were Florida and South Carolina, and the top two states where they moved from were California and New York — two states in the top five states for cost of living in the United States, according to Forbes. 

New York and California are also in the top three for housing prices. South Carolina ranks 32nd and Florida 21st, according to Wisevoter.  

In California, the median housing price is $793,600 and $649,000 in New York, according to Bankrate. By comparison, the median housing price in Florida is $405,000 and $360,800 in South Carolina.  

“Where you live affects many aspects of your finances, including the cost of taxes, housing, transportation, healthcare, and other services,” Laura Adams explained.  

“Living somewhere with a lower cost of living may help offset inflation,” she added.  

There are 13 states that do not tax retirement income. Moving to one of these states may also help increase your monthly cash flow.  

Convert Your Traditional IRA to a Roth IRA 

There are two different types of individual retirement accounts (IRAs) that both offer tax advantages. 

A traditional IRA allows individuals to make pre-tax contributions, meaning you pay less in income taxes on your current take-home pay. However, you will pay taxes on the money when you start making withdrawals. 

Another option is to use a Roth IRA. With a Roth IRA, individuals make after-tax contributions, but you don’t have to pay taxes on any of the money when you start making withdrawals. This means that the money in a Roth IRA is tax-free. 

Rikin Shah, founder and CEO of GetSure.org, says that if you have a traditional IRA you should consider converting it to a Roth IRA.  

“This strategy involves converting a traditional IRA into a Roth IRA, potentially reducing future tax liabilities and providing tax-free withdrawals that are not affected by inflation,” Shah explained. 

Most major investment firms will help you through this process or you can enlist the help of your personal financial advisor to guide you through this process.  

Find Other Income Sources 

“A great option for retirees who are struggling due to inflation is to get involved in gig work as a simple and low-stress way to earn some extra money on their own schedule,” said Jake Hill of DebtHammer.org. 

“Luckily, this doesn’t have to be a traditional job. A great option for retirees to get some extra cash when they need it is to freelance their skills. For example, if they used to be a teacher, they can pick up some tutoring gigs. If they used to work in the business/finance industry, they can do some consulting,” Hill added.  

Other options he suggested include guest blogging, Airbnb hosting, food delivery, and walking dogs.  

“I recall a retiree who turned his woodworking hobby into a small online business. This not only provided him with additional income to buffer against inflation but also added a fulfilling aspect to his retirement life,” said Dennis Shirshikov, Head of Growth at Awning.com and former Professor of Economics at City University of New York. 

Adjust Your Withdrawal Rate 

Shirshikov also recommends revisiting and adjusting the withdrawal rate you are currently using for the money you are receiving from your retirement accounts.  

“The conventional wisdom of a 4 percent withdrawal rate in retirement might not hold up in high-inflation environments,” he explained. 

“For instance, a story comes to mind of a couple I advised who adjusted their withdrawal rate during an inflationary period. By slightly lowering their withdrawal rate and reevaluating their discretionary spending, they managed to preserve their principal while still enjoying a comfortable retirement,” he added.  

Reevaluate and Stick to Your Budget 

During an inflationary period, it becomes crucial to budget your expenses and strictly adhere to that budget. 

“With the increasing rate of inflation, the best decision to make is to stick strictly to a budget and give less room for impulse buying,” said Mark Stewart, in-house Certified Public Accountant for Step By Step Business and an accomplished author and financial media specialist. 

“It is also important that you reevaluate your budget to ensure that it accommodates mostly your needs and less of your wants,” Stewart added.  

To assist with budgeting, Stewart also thinks it’s important for retirees to stay informed.  

“Staying informed with the economic updates is a wise decision in retirement that can help you navigate inflation because then you can know what adjustments to make to your financial plan to protect the value of your money or even stay abreast with prices in order to create an effective budget,” he explained.  

Final Thoughts 

While navigating retirement and inflation can be a source of stress, the good news is that there are several strategies retirees can employ to combat these challenges effectively, including diversifying their investment portfolios with inflation-resistant assets, seeking additional income streams, leveraging home equity wisely, and optimizing social security benefits timing. 

Moreover, by embracing budgeting and exploring cost-saving measures such as relocating to more affordable areas, retirees can further enhance their financial resilience against inflation’s unpredictable nature. 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.