Warren Buffett Says Retirees Should Always Do These 6 Things With Money

Switching from living off of your salary to living off of a retirement plan can be a challenging transition for many people. Once you rely on a fixed income, where you have to draw down on your 401(k) and other savings in order to live, it becomes more important than ever to monitor your expenses.

Warren Buffett, the well-known billionaire and founder of Berkshire Hathaway, regularly gives financial tips in the media and through his shareholder letters. Here are six things Buffett says retirees should always do with their money.

Consider the 90/10 investment rule

As mentioned, Buffett regularly gives advice through his shareholder letters. In 2013, he introduced his 90/10 investment rule by sharing what he wrote in part of his will. With reference to a cash inheritance going to his wife, he said he advised his will's trustee to keep 90% of the cash inheritance in an S&P 500 index fund and 10% in short-term government bonds.

He recommends this approach because it avoids expensive investment fees and doesn't require you to have extensive investing knowledge to understand the approach. However, it's not foolproof, as there's always a sequence of returns risk in a down market.

Pay off high-interest debt as soon as possible

Buffett also strongly recommends that people pay off any high-interest debt they may have, like credit card debt. In fact, he says that paying off your credit cards is one of the best guaranteed ways to get a return on your money. Currently, the average credit card interest rate is just under 21%, according to the Federal Reserve. Because of that, Buffett recommends paying off your debt first before anything else.

Always have a cash reserve to protect against the unexpected

Buffett also encourages people to have a cash reserve. He credits Berkshire Hathaway's cash reserves with allowing him to pursue investment opportunities. If you don't have an emergency fund, it can cause you to use your credit cards if you don't have cash on hand to pay for an unexpected expense. This is especially important for retirees who may have to pay for an unexpected hospital visit or an extensive home repair. An emergency fund can also help protect retirees from having to withdraw from their 401(k)s during a down market, which could help their nest eggs last longer.

Invest in what you know and keep fees minimal

As mentioned, Buffett encourages people to avoid expensive investment management fees. He instead encourages people to invest in straightforward S&P 500 Index funds, even if they're wealthy. He has stated many times in the media that he does not think people should invest in anything they don't know. For example, he largely stayed away from investing in certain technology stocks because that was not his area of expertise.

Live below your means, even if you have a high net worth

Buffett is famous for his frugal habits. He is known for driving cars for a very long time, even though he could afford a fleet of vehicles. His daughter even bought him a Cadillac that was used and had hail damage. He has also lived in the same house for 50 years. Buffett, in one of his shareholder letters, reminded readers not to chase status or power. Instead, he encourages people to be kind to others and always spend less than they earn. He is reportedly planning to give away 99% of his wealth upon his death, with most of the Berkshire Hathaway shares he holds going to charity.

Help yourself before helping adult children

Buffett famously said, "Leave the children enough so that they can do anything but not enough that they can do nothing." He strongly encouraged his own kids to pursue their interests, and all three of them are in different fields and run their own charitable foundations. However, many retirees help their adult children even if they don't have their own financial house in order.

These tips apply to anyone regardless of portfolio size

Buffett's six tips listed above are for anyone, regardless of how much they currently have in their investment portfolio. Many of Buffett's core financial principles are time-honored ones, like avoiding debt and investing in index funds. He offers straightforward advice, like being mindful of spending. And he recommends staying away from expensive investments to everyone, whether they are a young student or a professional athlete, like LeBron James.

Bottom line

Ultimately, Buffett gives advice through his shareholder letters and the media in order to help people avoid making financial mistakes. Before taking his investment advice, however, Buffett would likely recommend that people pay off high-interest debt and save an emergency fund first before they start investing in the market.

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