8 Tips To Increase Your Net Worth Before Retirement
Written by
Cindy Lamothe
Edited by
Chris Cluff
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Increasing your net worth before retiring may be the furthest thing from your mind when you’re so close to what feels like a lifelong finish line. But taking steps toward creating a higher net worth can provide you with a greater financial cushion during your retirement. It also can ensure you have enough savings to cover your living expenses, healthcare costs and unexpected financial emergencies.
While there are many ways to achieve this, here are some expert-backed recommendations for you to consider today.
Create a Detailed Financial Strategy
According to Jeff Mains, a finance expert and CEO of Champion Leadership Group, this should be at the top of your list. Your plans should include saving, investing and debt management.
“Start with defined financial goals and a budget for continuous savings,” Mains said. “Consider equities, bonds and real estate to reduce risk and maximize returns. Retirement plans like 401(k)s and IRAs offer tax benefits and employer contributions, so use them.”
A well-thought-out financial plan will help you create a budget that ensures you’re living within your means and saving enough to meet your retirement goals. It also allows you to track your income and expenses, identify areas where you can cut costs, and save more money.
Paying Off Debt Is Crucial
Most experts agree that managing the money you owe can save you once you’re retired. That said, not all debt is created equal.
“One of the best ways to increase your net worth before retirement is to pay off your high-interest debt,” explained Jake Hill, finance expert and CEO of DebtHammer. “This will not only improve your debt-to-income ratio but will also leave more of your retirement budget open for other important expenses.”
Ben Gold, a real estate agent and founder of Recommended Home Buyers, recommends prioritizing payoff of high-interest credit cards and personal loans.
“Reducing debt not only saves on interest payments but also frees up funds to invest and grow your net worth,” he said. “I recently worked with a client who had significant credit card debt. By creating a debt repayment plan and reallocating those funds into investments, we watched their net worth grow substantially over just a few years.”
Automate Your Savings
You can build a more substantial nest egg over time by setting up automated contributions to retirement accounts and other investments.
“This ensures you consistently save a portion of your income, taking advantage of compounding growth,” Gold said.
It’s easy to spend money that’s readily available in your checking account, whereas automating your savings forces you to allocate some of your income before you have a chance to spend it.
Shift Focus from Income to Assets
Financial planner Michael Ryan suggested identifying side hustles or investment vehicles that can work for you outside of your 9-to-5 job. He said to look into rental properties, dividend stocks and launching an online business as great options.
“Too often, we get caught up solely in growing our incomes rather than building assets that generate passive income streams.”
Investing in a second home also can be a smart means to generate passive income by leveraging short-term rental platforms like Airbnb. This additional income can help pay down your mortgage. And once your mortgage is paid off, you’ll have a significant asset that will keep reaping passive income if you choose to rent it out.
Make Smart Investment Strategies
Diversifying your investment portfolio to include stocks, bonds, real estate and other assets can all help increase your net worth, experts say.
“Implement a long-term investment strategy that balances risk and return, considering your retirement timeline and financial goals,” Gold advised.
Hill added: “I also recommend increasing your retirement contributions, up to the annual contribution limit if possible. This allows you to increase your net worth while also maximizing your future retirement income.”
Get Ultra-Efficient With Taxes
Efficient tax planning means diversifying your investments across various types of accounts. This can help you manage your tax liability once you’re retired. Having a mix of taxable, tax-deferred and tax-free accounts allows you to strategically withdraw funds in a way that minimizes the tax impact.
The savviest way to do this, according to Ryan, is to meet with a trusted CPA or financial advisor to implement customized tax planning, like harvesting losses to offset capital gains.
“Also maximize tax-deferred and tax-free accounts like 401(k)s, HSAs and Roth IRAs,” he said. “Reducing taxes preserves more capital for growth.”
Stay Informed on Financial Matters and Market Developments
Staying up to date on market developments can help you identify opportunities for growth. For example, you might spot undervalued stocks or investment sectors that can offer high returns. Being proactive in taking advantage of these kinds of opportunities can significantly impact your net worth.
“Staying educated helps you make retirement-related decisions,” Mains noted.
He also recommended finding a financial counselor who understands your situation and can create a customized plan to raise your net worth consistently as you approach retirement.
Financial knowledge and awareness are key for effective long-term planning. This means setting clear financial goals for your retirement, estimating how much you need to save, and creating a plan that aligns with your objectives. Staying consistently informed helps you adjust your plan as needed over the years.
“Remember that increasing your wealth takes discipline, patience and planning,” Mains said.
Remember Timing Matters
Timing of moves is crucial when coming up with a retirement strategy to increase net worth.
“Be strategic when you claim Social Security benefits, convert traditional retirement accounts to Roth IRAs and downsize homes and assets,” Ryan said. “Optimize these pivotal moves to minimize taxes and maximize growth in your ideal retirement timeline.”
Social Security monthly benefits, for example, are reduced if you start payments before your full retirement age.
The bottom line? Increasing your net worth before retirement is achievable with smart investments, debt reduction, and automated savings, Gold said. These tips can put you on a path to a more financially secure retirement.
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