7 Expert Money Lessons You Must Learn Before You Retire
Written by
Crystal Mayer
Edited by
Zuri Anderson
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Before you retire, you will want to ensure you are financially stable. Unfortunately, many retirees fear they will outlive their nest egg. According to a recent report from the National Institute on Retirement Security (NIRS), 79% of people believe there is a retirement crisis, and over half of respondents (55%) were concerned they could not “achieve financial security in retirement.”
To help ease some of these fears, GOBankingRates asked Christopher Stroup, CFP, founder and president ofSilicon Beach Financial, to weigh in on how people can better prepare themselves for retirement. Here are the seven expert money lessons the financial expert says you must learn before you retire.
Also, here’s exactly how much you savings you need to retire in your state.
How To Effectively Manage Your Debts
The first lesson you should learn before you retire is how to manage your debts effectively.
Stroup explained, “How you manage your debt can make or break your finances by the time you enter retirement. It’s critical that you understand how to manage and pay down your debt effectively, especially during your working years when your income is likely less fixed.
“In practice,” he continued, “this means managing your debt payoff strategy across various forms of debt, such as credit cards, personal loans and mortgages. Carrying debt as you enter retirement can place an unnecessary burden on your finances and limit your lifestyle, so it’s important to manage it effectively from the start.”
An Emergency Fund Is a Priority
Second, you should make your emergency fund a priority.
Stroup said, “Most folks are unprepared to cover a true financial emergency. In retirement, it’s important to recognize that unforeseen expenses and emergencies will pop up — it’s only a matter of time.”
The financial expert continued, “Having an emergency fund in place can give you the cushion you need to effectively manage these short-term curveballs while not turning to credit cards or prematurely dipping into your retirement savings to cover the expenses.
“At minimum,” he added, “your emergency fund should cover at least three months of your required expenses; however, if you rest easier at night by sitting on more cash, you could set a goal of six to twelve months’ worth of expenses being set aside in your emergency fund.”
Saving Early for Retirement Is Important
Next, you need to make sure that you are saving early and often.
Stroup noted, “Given the absence of pension plans in most workplaces, it now falls on your shoulders to fund the lion’s share of your retirement. This means that it’s essential to participate in any employer-based retirement plans, such as a 401(k).”
He added, “As you approach retirement, be sure to take advantage of catch-up contributions that can be made to your 401(k) or IRA accounts if you’re over the age of 50. This can help supercharge your retirement savings, especially if you started saving later in life.”
What To Keep In Mind on Healthcare Options
As reported in the NIRS survey, 66% of people are worried “about rising healthcare costs in retirement.” Research shows that their fears may be warranted.
“Medical expenses can quickly derail your retirement,” said Stroup. “It’s important to plan ahead and stay informed of your options well before making the decision to retire. This could include saving into a Health Savings Account (HSA) during your working years to help offset future medical expenses. You’ll also want to weigh your options when it comes to Medicare coverages, supplement insurance options and long-term care expenses.”
Review Your Investments Early For Better Outcomes
Before you retire, you will also want to review your portfolio to ensure you aren’t overly concentrated.
Stroup explained, “Nothing can implode your retirement journey quite like putting all your investment eggs in one basket. It’s important to begin investing aggressively as early as possible so that you can take advantage of compound interest over many years, if not decades.”
He added, “You’ll want to diversify your risk by investing across different asset buckets like stocks, bonds and real estate. A well-balanced portfolio is critical to a financially-secure retirement.”
Why You Should Weigh Your Social Security Claiming Options
Understanding Social Security is also critical for your success during retirement.
Stroup said, “Social Security can be an essential source of guaranteed income during your retirement years, which is why it’s important to weigh your claiming options to make the most of this income source.”
He continued, “For each year that you delay collecting Social Security, you can see a 7% to 8% increase in your monthly benefit up to the maximum deferral age of 70. With this in mind, you’ll want to make sure that you understand the benefits of Social Security and potential claiming options given your personal situation.”
Crafting Your Estate Plan Is Essential
While many people do not want to think about the inevitable, crafting an estate plan is an essential, and often overlooked, step for creating a stable financial future for your family.
Stroup said, “The reality is that life is fragile and that someday you will pass away. It can be uncomfortable to think about your own death, but it’s essential to build a comprehensive estate plan to ensure that your hard-earned assets are distributed according to your wishes while reducing any taxes on your estate or heirs. A comprehensive estate plan includes documents like wills, trusts, advance health care directives and powers of attorney.”
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