3 Money Moves to Make During Your First Year of Retirement

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While some seniors enjoy the transition into retirement and less pressured lifestyle that comes along with it, others inevitably find it disconcerting. After all, retirement signifies a number of changes, and adjusting to them is often easier said than done. To ensure that things go smoothly from a financial perspective, here are three key money moves it pays to make once retirement begins.

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1. Create a new budget

Some people are quick to assume that their expenses will drop significantly once they stop working, but believe it or not, a whopping 46% of households end up spending more money, not less, during their first few years of retirement. That's why it's crucial to establish a whole new retirement budget that not only more accurately reflects your costs, but is based on your anticipated income.

When creating your retirement budget, don't forget to account for a rise in healthcare and leisure spending. Once you move off a company insurance plan and over to Medicare, there's a chance you'll end up spending more on healthcare than you did back when you were working. Furthermore, because you'll have an abundance of free time on your hands, you can expect to shell out more money for entertainment. Being mindful of these costs will help you map out a precise retirement budget that allows you to stretch your limited income the furthest.

2. Review your investment mix

The investments you hold during your working years aren't necessarily the ones you should retain in retirement. While it's OK to take on some risk in your retirement portfolio, you should also make sure to shift some of your more aggressive investments, like stocks, into conservative alternatives, like bonds. The reason? Since you'll no longer be collecting a salary, you might need to liquidate those assets on a regular basis as a means of accessing cash to pay the bills -- so the less volatile your investments, the less likely you are to lose money.

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But don't rush to move all of your investments out of stocks; you still want a healthy mix to ensure that your portfolio delivers a decent overall return. Furthermore, you should look at income-generating investments, like dividend stocks, so that you'll have a steady stream of cash coming in even during periods when the market underperforms.

Along these lines, you might consider putting some money into municipal bonds, which offer the benefit of tax-free interest payments at the federal level. Better yet, if you buy municipal bonds issued by your home state, you won't face state or local taxes, either. And because municipal bonds have an extremely low historical default rate, they're a pretty safe option to balance out your riskier investments.

3. Figure out the ideal savings withdrawal rate

Ideally, you'll be entering retirement with a healthy amount of savings. But how much should you plan to withdraw each year?

To answer this question, many people rely on the 4% rule, which states that if you start by withdrawing 4% of your nest egg's value during your first year of retirement and then adjust subsequent withdrawals to keep up with inflation, you stand a strong chance of having your savings last 30 years.

Though countless financial experts believe firmly in the 4% rule, it may not be the right choice for you. If your investments aren't generating a high enough return to support a 4% annual withdrawal rate, you may need to adjust that number downward. On the flip side, the 4% rule is meant to cover a 30-year retirement, but if you worked well into your 70s and are only looking at a 20-year time frame, you can increase your yearly withdrawals and enjoy a more comfortable lifestyle as a result. You might need to play around with different scenarios to arrive at the ideal number, but be sure to put some thought into the decision so that you start off on the right foot.

The money moves you make early on in retirement could set the stage for several decades of financial stability and security. If you focus on creating a budget geared to your new lifestyle, reviewing your investments, and developing a smart withdrawal strategy, you'll be better positioned to enjoy the stress-free retirement you've worked so hard for.

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