Benefits of financial wellness in retirement (2024)

Feeling good about your finances is a key ingredient.

Fidelity Viewpoints

Key takeaways

  • Our 4-step financial wellness framework can help you feel financially fit and confident in retirement.
  • Budgeting, minimizing debt, developing an investing and retirement income plan, and protecting your assets are keys to financial wellness in retirement.
  • Also critical is emotional preparedness as you redefine your post-work identity and find new ways to socialize.

Here's a simple question with no easy answer: If someone gave you $250,000 toward retirement, would you feel more prepared to stop working?

Fidelityresearchfindsthat having a quarter of a million dollars or more is an important milestone that can change a person's outlook when facing the many challenges posed by retirement.1 But money is only part of the equation. It's also important to feelfinancially well.

How can you achieve a sense of confidence and calm about your retirement? It’s different for everyone. But 2 keys to success are emotional and financial preparedness. And they are intertwined. Having a financial plan in place—including a budget, debt management, an investing and retirement income plan, plus protections like insurance and a will—can help you achieve the sense of overall wellness in retirement you deserve.

Here are 4 steps that can help you feel financially fit in retirement.

Benefits of financial wellness in retirement (1)

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1. Go ahead and make a budget (again)

One of the key foundations of financial wellness in retirement is making sure you're spending within your means. With volatile markets and high inflation,budgeting wisely in retirementis particularly important.

Begin by breaking down your essential, or must-have, expenses. Then see if you can pay for them with predictable sources of income like Social Security, pensions, and annuities.

The discretionary, or nice-to-have, part of your budget including travel, gifting, and entertainment, should come from your retirement savings, such as 401(k)s and IRAs.

Here's something else to keep in mind: Your spending patterns will likely change in retirement and evolve as your priorities and needs shift. For example, essential expenses such as for housing, food, and transportation may all drop, while costs for health care could rise. Meanwhile, discretionary costs may increase early in retirement, as you take advantage of more leisure activities such as travel and dining out with friends.

2. Create a retirement income and investing plan

Many retirees are reluctant to spend what they've saved, largely because they may fear they will run out of money. That's the case even for people with adequate resources.

To be highly confident (i.e., it should work 90% of the time) that you won’t run out of money in retirement, our general guideline is to withdraw no more than 4% to 5%from your investment portfolio in the first year of retirement, adjusting that withdrawal rate for inflation in subsequent years.

Sticking to a 4%-to-5% withdrawal rate is especially important if you are retiring into a weak market, as bigger withdrawals can undermine your portfolio’s ability to rebound with the market. During a down market, you will need to withdraw less in dollar terms, and consequently may have less money for expenses.

How you invest is critical too. Depending on your risk tolerance, financial situation, and retirement horizon, you may want to construct a portfolio that allows for some growth. Generally speaking, a portfolio with more stocks might provide more growth over time, but it would also be more volatile.

Find out more about creating a retirement income plan here.

3. Think twice, or three times, about debt

Carrying too much debt is never a good idea, and it can be a barrier to financial wellness and a significant source of stress at all phases of life. That's particularly true in retirement, when some kinds of debt can pose a heightened threat.

Just as in the past, it's important to think about whether your debt can help you make progress toward, or could possibly derail, your longer-term goals.

Debt above 6% should be paid off as soon as possible—think mostly everything you charge on a credit card that isn't paid off before interest starts accruing.

Whether your debt can help you advance your goals or not, you should have a payoff plan. If it's credit card debt, pay more than your monthly minimum. Look around for lower interest cards to shift your debt. And remember, think carefully about the impact of any debt you know you can't pay off.

Two strategies to consider if you find your credit card debt is getting out of hand, for example, are the debt snowball and the debt avalanche methods. With the debt snowball, you pay off the smallest loan first and work your way up. (That way you can benefit from a feeling of accomplishment from watching your smallest debts disappear sooner.) The debt avalanche method is almost the opposite and involves tackling your highest interest rate loan first and working your way down.

You can find out more about these approaches in Viewpoints: 2 strategies for paying down debt.

4. Make sure you have adequate financial protection

Your financial situation can go from stable to uncertain in a short amount of time. That's why it's important to make sure you're protected, with adequate emergency savings, health insurance, a plan for long-term care, and an estate plan.

Nearly three-quarters of retirees fear running out of money in retirement.1 Their chief concern is having a major health event, or needing nursing home care. These are fears worth paying attention to, as the average cost of health care for a retired couple age 65 in 2022 is $315,000, according to Fidelity's Retiree Health Care Cost Estimate.2 Additionally, 70% of adults over 65 may require skilled care, with national estimates suggesting 1 year in a private room in a nursing facility could cost an additional $108,405 (and significantly more in some states, such as Alaska, Connecticut, and Hawaii).3

Long-term care insurance premiums are primarily based on a number of factors, including age, gender, and marital status. So if you don't already have one, consider purchasing a policy. There are many different kinds, from standalone polices to hybrid life insurance plans. Do your research and make sure the company from which you purchase a policy is sound.

Read Viewpoints on Long-term care: Options and considerations

And if you haven't already done so, make sure you have an estate plan in place. That might include such things as medical directives, power of attorney, beneficiary designations, trusts and wills, as well as proper titling for property and homes. If you already have an estate plan in place, remember to go over it from time to time to make sure it still fits your situation.

It's more than money

Just as important as having adequate financial resources, and a plan for managing them, is finding your post-work identity. That may include new hobbies, educational pursuits, and new ways to have social interactions, all of which can help you develop a sense of emotional wellbeing.

Some common questions to consider are: What brings meaning and a larger sense of purpose to your life? What do you want to do with your unstructured time? How will you define who you are in your post-work life? Where do you want to live?

Answers to these questions and others can help you come to an understanding of what your new normal is. It can also help lead you to make smarter financial decisions in retirement.

Putting the pieces together

Financial wellness in retirement involves assembling and reassessing a number of planning components you've probably been thinking about for years. But your financial wellness framework is unique to you. As you consider what your own financial wellness looks like in retirement, consider working with a tax planner or financial advisor to create a plan that works now, and that will carry you far into the future.

Benefits of financial wellness in retirement (2024)


What are the benefits of financial wellness? ›

Financial wellness is important because it equips us with the knowledge and skills we need to manage money effectively. Keeping track of expenses and making a budget and sticking to it are important skills to have in order to be financially responsible and independent.

What are the 4 financial wellness pillars of Fidelity? ›

Our 4-step financial wellness framework can help you feel financially fit and confident in retirement. Budgeting, minimizing debt, developing an investing and retirement income plan, and protecting your assets are keys to financial wellness in retirement.

What is a benefit of achieving financial well being? ›

Being financially well means you can meet your current and ongoing financial obligations, feel secure in your financial future, and are able to make choices that allow you to enjoy life – in other words, financial freedom.

Why is it so important today for adults to plan financially for retirement? ›

Retirement planning is important because it can help you avoid running out of money in retirement. Your plan can help you calculate the rate of return you need on your investments, how much risk you should take, and how much income you can safely withdraw from your portfolio.

What are the five pillars of financial wellness? ›

Financial confidence comes from understanding how budgeting, saving, investing, risk and debt management work. These pillars develop good money habits and build a strong foundation for a stable future.

Why are financial benefits important? ›

Financial wellness is important in the workplace because it directly impacts employees' overall health and well-being. A focus on financial well-being can improve employee health and well-being, leading to increased productivity and decreased financial stress.

What are the positive effects of being financially stable? ›

Financial stability also gives you the ability to plan for your future financial situation, whether for retirement, education or achieving long-term aspirations. Moreover, it offers a safety net during economic downturns or unexpected life events, providing a safeguard against sudden financial hardships.

What are the benefits of being financially responsible? ›

Being financially responsible involves making a plan for your money and sticking to it as much as possible. Controlling where your money goes might make it easier to save for emergencies, stay out of debt and build good credit. When you put those things together, you start to build more financial security.

Why is it important to have money for retirement? ›

Saving now for retirement will ensure that you have enough money to enjoy a comfortable standard of living when you stop or reduce the amount of hours you work.

What is good about retirement? ›

Retirement allows people to step away from the rat race, focus on keeping active, and enjoy fulfilling activities that don't include staying late at the office or answering emails on a Sunday morning.

What are the benefits of a retirement plan? ›

Retirement accounts are intended to provide you with income when you stop working and are an extremely valuable asset. Without a retirement plan, you will have no other option other than to keep working past the “traditional” retirement age, as it is unlikely Social Security will provide you with enough income.

What are the benefits of financial fitness? ›

Financial fitness is incredibly important to achieving a high quality of life. For one thing, it allows you to fulfil your short-term needs, like paying your bills and buying food. It also helps you plan ahead and save up for large purchases in the future.

What are the benefits of being financially organized? ›

Organizing your household finances saves time and money.

A good system for organizing finances can help you avoid late fees for past due bills, keep track of your spending and savings goals, and find important documents when you need them.

What are the benefits of being financially stable for others? ›

People who are financially stable are more confident and less likely to experience feelings of insecurity or jealousy, which can negatively impact relationships. They are also more likely to communicate effectively, resolve conflicts, and build healthy and positive relationships with others.


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