1. Pay Off Your Debts Before You Retire
This might seem a little obvious, but when it comes to retirement, interest rates on debt don’t falter. In fact, your debt will likely continue to grow at exactly the same rate as pre-retirement. Unfortunately, as a country we don’t have major debt relief programs for seniors and you just have to develop your own payment strategies. It is advisable to pay off as much debt as possible before retirement, in order to avoid growing debt.
2. Have a Fallback Plan
If something unexpected happens, how do you plan on paying for it? A good retirement plan should include contingencies and most seniors are likely to face a medical crisis of some kind. For instance, the average stay in an assisted living facility is 28 months. While I don’t think that everyone will be in an assisted living facility, I understand that the odds of a medical emergency are high for seniors and it is important to be prepared.
Some retirees utilize a reverse mortgage, while others prefer to liquidate holdings in the event of major financial need. Whatever you choose to do, make sure that you have a foolproof strategy or a way to recoup after a major loss. Not sure how to protect your retirement income from an unexpected cost? Schedule an appointment with me and I will give you more options!
3. Consider a Part-time Job
Many retirees opt for part time work and use the earnings as supplemental retirement income. Un-retirement, a colloquial term referring to when retired seniors return to the workforce, has been increasing rapidly over the past decade. “Nearly 50 percent of retirees follow a nontraditional retirement path that involves partial retirement or unretirement, and at least 26 percent of retirees later unretire.” Working a part-time job immediately after retirement would be considered a “phased” retirement. This is often done when you don’t have other financial assets to provide a safety net.
4. Invest For Better Returns
Some retirees invest too conservatively. Sometimes, this means that their investments don’t grow fast enough to sustain them throughout their lifetimes. This often occurs as a result of bond investments with antiquated rules like “invest in a portfolio that is a percentage equal to your age in bonds and the remainder of your investments should be in stocks.”
This rule serves a good purpose: to reduce investor risk as your investment horizon shortens and it also reduces volatility. However, this type of allocation often doesn’t grow sufficiently.
Bonds have unique market risks, including interest rate risks. Whenever interest rates rise, the price of bonds fall. That’s why many investors have shied away from bonds in the past few years. Earlier this year, the Fed increased interest rates by 0.25% and there are expected to be 4 rate increases by the end of 2018. As a result, it’s not necessarily the best time to invest in bonds, or utilize a strategy with an increasingly larger bond portfolio. We recommend meeting with a fiduciary to discuss your investment plan, especially when it comes to portfolios that are vulnerable to market shifts.
5. Be Prepared For Expensive Healthcare
When it comes to retirement, one of the biggest unplanned expenses is healthcare. You don’t want to end up with a large surgical bill, or other unplanned medical expense, and no way to pay it off. Here are a few financial concepts that can lessen the blow of your medical costs.
Obtain a Health Savings Account Before You Retire
HSA’s provide a triple tax advantage, so you never have to pay taxes on them and they will reduce your taxes when you file your HSA contributions at the end of each year. This year, congress actually increased the contribution limits for Health Savings Accounts, so that you can save even more on your taxes. See the new contribution limits here.
An HSA is functionally similar to a savings account, except you can only withdraw the funds for medical expenses. Any other withdrawals are still taxed and have an additional fee. We recommend an HSA to take taxes out of your healthcare spending. It can save you quite a bit of money!
What Happens to my HSA After Age 65? Do I Pay Taxes Then?
You won’t be able to add more funds to your HSA after you enroll in Medicare. However, you will still be able to use the funds for out-of-pocket medicare payments and qualified medical payments, such as long-term care. The amount you can withdraw tax-free for long-term care varies based on your current age. You can find that information here.
After age 65, you will no longer be penalized 20% for withdrawing money from your HSA for non-qualified expenses. You only pay taxes to withdraw money from your HSA, when you withdraw funds for a non-qualified purpose, but the additional penalty no longer applies after 65.
Long-Term Care Insurance
When it comes to long term care, it can be cheaper to get insurance. This is as a result of the length of care for the average person. In assisted living facilities, the average length of stay exceeds 2 years, so costs add up quickly. You should definitely consider long term care, if you have a pre-existing or familial condition that is likely to result in a lengthy stay. I recommend that you obtain long term care, if you expect to utilize it.
6. Meet With a Fiduciary
How can you be sure that you have enough money for retirement? How do I know that it’s in the right investments?
Everything is on a case-by-case basis and you need a trusted professional that can forecast your retirement for you. Fiduciaries are legally obligated to act in your best interests and they are the best financial advisors to ask for retirement advice. It is important to include safety features in your written retirement plan, in case of unexpected costs & emergencies.
No one wants to run out of money in retirement. If a complimentary meeting could help you keep your finances afloat, would you schedule one today?
I would love to help, just give us a call! (512) 638-9499