As you retire and head into, arguably, the best years of your life, you’ve no doubt done everything you could to save up as much retirement money as possible. You’ve fought your way through an industry, sometimes multiple careers, and vaulted over every hurdle that came down the path. But that does not mean that you’re fully prepared to face retirement. Your finances during retirement change drastically, and if you do not have a passive income that can cover your monthly bills, you’ll end up needing to return to the work force again when the money runs out. This is a fear for every retiree and their families. However, as long as you keep some fundamentals in mind about your post-retirement finances, you could be set to live the rest of your life without worry. Here are the top 5 things to keep in mind.
#1 Inflation will Change Your Budget Dramatically
Even if you have been working with money all your life, chances are, you can do with some outside help. Everyone learns how to budget when they hit adulthood and go out alone, but that doesn’t mean it is the same process from all those years ago. For example, with an inflation increase of 3% a year, in 30 years that becomes a 242% cost increase. If you retire at 62, and you make it to 92, would your money be able to cover that? Chances are, yes—but only if you get a little help in how to plan for it.
To make things dicer, if you follow the rule of thumb for standard withdrawal rates, you might get further heart palpitations. Rule of thumb says to think about a 4% withdrawal every year that you are retired, to live off of. But think about that number. If there is a million dollars in your account, 4% of that is $40,000. Now inflate that over 30+ years, and you’ll soon realize why you need to speak with a financial professional about a budget.
#2 Hold Off for as Long as You Can, If You Can
There is a plethora of benefits that you can gain from putting off the transition just a little longer. For example, by working for another year passed your retirement age, you can generally collect more money than you would by immediately retiring. The general figure of this is an increase of about 8%. That’s a huge increase when you are relying on social security moneys. Further, by waiting that extra year, that’s 365 days of more income than you had originally. That can be a huge increase in your finances when you do retire.
#3 Get Illnesses Covered by Insurance
Only a few, very lucky people will go into retirement without health issues and live their life to completion without any major incidents. Chances are, you need to plan for when you get sick as a retiree. Healthcare in the United States is insane, it doesn’t make it any better that basic sicknesses like high blood pressure require medications that are priced as high as possible. By the time you are 30, you should be looking at long term critical illness coverage in insurance. Health insurance is a dramatically decisive factor in your finances when you’re retired, since you aren’t paying for the super high expenses. Go for the maximum amount of critical illness coverage that you can find.
#4 Remember to Use Your Largest Asset
Your home is the largest asset that you will ever have. It’s important to view it as a continuous retirement cache, especially in areas where housing costs are increasing. If you own your home, selling it after you begin to run low on money will greatly add to your accounts. And if you do not own it, there are other options too. Things like second mortgages are great, but it would ensure that you then have an extra payment to think about every month. In contrast there are options like reverse mortgages. Check out this link to read more about them and how they work for you: https://reverse.mortgage/how-does-it-work.
#5 Invest in Investments
Investing is a complex subject because there is a lot of skill involved in doing it right. If you were lucky, you started investing when you entered the workforce, but chances are other things took precedence. Even as a retiree you’ll want to look at investment options that will help your accounts to grow, as it is a passive income that could help you down the road. Try investing in a few stocks to begin and note the difference between those stocks when they grow and how much you get by using a savings account. After you turn 50, you may be able to explore things like contributions from IRAs or 401Ks too.