Making wise financial plans for retirement is essential if you want to enjoy your golden years without having to worry about making ends meet. Fortunately, if you plan ahead and plan well, you should be able to live richly long after you’ve left the workforce.
To find out how to make the best retirement plan, GOBankingRates asked four financial experts for their best retirement-planning tips — and how they prepared for their own.
Click through to get expert tips on retiring rich.
Tips for Financial Success in Retirement
Whether you’re close to retirement age or have a while to go, there are things you can do now to be financially successful in the future. Keep reading to get experts tips for achieving financial success.
Save a Fixed Percent of Your Income
“Save 20 percent of your income off the top,” said Ted Jenkin, CFP, co-founder of oXYGen Financial, a firm dedicated to the X and Y generations. “You’ll also feel less guilty about what you spend off the bottom by saving first.”
Spend Less Than You Earn
Although there is no one-size-fits-all strategy for financial success, there is one universal rule everyone should live by, said J.D. Roth, founder of Get Rich Slowly, a financial website.
“It’s hard to say that there’s one thing that everyone should do,” he said. “I believe that each of us has different strengths, goals and circumstances, so blanket advice is generally useless. Having said that, there is one universal [tip]: To accomplish whatever you want to accomplish, you have to spend less than you earn. Yes, that sounds elementary, but it’s a fundamental truth. Whether you want to buy a home, travel the world, send your kids to college or retire early, you’ll make quicker progress toward your goal if you increase the gap between your earning and spending.”
Have a Guaranteed Lifetime Income
“Cover your basic expenses in retirement with some form of guaranteed lifetime income,” said Tom Hegna, author, speaker and economist. “No retirement plan is complete until then.”
“Financial discipline is one of the biggest keys to financial success,” said Sharon Epperson, CNBC senior personal finance correspondent, host of CNBC’s “Retire Well” and a 2018 Best Money Expert nominee. “Keep track of your spending: record purchases in a journal and stay accountable. With online spending, debit cards and credit cards, it can be easy to consistently splurge — but if you set financial goals, you can stay away from unnecessary purchases on a whim that will keep you from having that savings account, paying off that loan so you can stop collecting interest, or saving for the retirement you deserve.”
What to Do If You're 50 or Older
Ideally, saving for retirement is something you begin to do in your 20s. However, if you’re 50 or older and haven’t been disciplined about retirement planning, there are still steps you can take to make sure you’re financially prepared when you are ready to retire.
It’s important to do something that will help you be ready for retirement, and to do it sooner rather than later, said Jenkin.
“Take action, any action,” he said. “Pay off your mortgage quicker. Try to max out your 401k with the catch-up [contribution]. Open a Roth IRA or a traditional IRA and use the catch-up [contribution]. Max out your HSA. Just take action.”
Reduce Housing Expenses
“If you find that you’re playing catch-up, you may have to make some big moves,” said Roth. “For most Americans, the biggest possible budget booster comes from reducing housing expenses. Housing accounts for one-third of the average American budget. This is huge. It’s more than clothes, food and health insurance combined. You can clip coupons all you want, but that’s never going to make a material difference to your retirement despite all of the effort. But if you’ll suck it up and find a way to cut your housing costs, you can save hundreds — sometimes thousands — of dollars per month.”
“This can be a tough sell, though, because people love their homes,” Roth said. “They view downsizing or moving to a lesser neighborhood as backward motion. That’s too bad. To my mind, it’s actually progress because it helps you reach your financial aims much more quickly.”
Make the Most of Your Social Security Benefit
“Optimize your Social Security benefit for you and your spouse,” said Hegna. One of the best ways to optimize Social Security is to delay claiming your benefits. If you wait until age 70 to start collecting, you will be able to collect the maximum benefit.
“This is the best money that money can’t buy,” he said.
Take Advantage of 'Catch Up' Contributions
“If you are 50 or over, make sure you take advantage of the extra catch-up contributions that you can make to retirement savings accounts,” said Epperson. “You can put away another $6,000 in your 401k if you’re 50 or older, and save up to $24,500 in your employer-sponsored retirement plan in 2018. You can save an extra $1,000 in an IRA or maximum contribution of $6,500 this year if you’re 50 or over.”
“Contributions to a traditional 401k or IRA will lower your taxable income dollar-for-dollar, which is another great perk,” she said. “If you contribute to a Roth 401k or Roth IRA, you are building up savings that you generally won’t have to pay taxes on at all in retirement. That’s also great.”
Beware of Unexpected Expenses
When planning for retirement, you are probably taking into consideration basic living costs such as housing and other necessities — but what about unexpected expenses?
Here’s what the experts said are the most common unexpected expenses that can put a retirement plan at risk — plus, how to prepare for these sudden obstacles.
Ask Tough Questions
Jenkin said that some of the most common unexpected expenses are healthcare, mortgage expenses, kids and parent care.
“Most people don’t ask the tough questions they need to because they worry about overstepping ‘financial’ boundaries,” he said. “Don’t be afraid to ask your parents if they have long-term care, or if they have saved money for your kids’ college education and how much in order to allow you to plan better with your own finances. If you refinance your home 10 years before you retire, think about whether or not you can carry this mortgage payment into retirement. By asking both yourself and those that surround you tougher questions today, you can plan better for the sudden obstacles of tomorrow.”
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Exercise 'Financial Resilience’
“All financial plans are subject to fate and fortune,” said Roth. “You lose your job. Your spouse gets sick. Your house burns down. While it’s not possible to plan for specific unexpected events, it’s certainly possible to prepare for problems in general.
“From my experience, the best way to do this is to exercise what I call financial resilience,” he said. “Financial resilience is the ability to cope with the unexpected without panic — kind of like how a tree bends in a windstorm without breaking. A variety of factors contribute to financial resilience. The greater the gap between your earning and spending, for instance, the less damaging sudden job loss is to your situation. The more you have in emergency savings, the less panic you feel when your car is totaled in the Walmart parking lot. The more diversified your investments, the less you care about stock market swings.”
Financially Plan for Long-Term Care Costs
“Long-term care risk is the $1 million problem that can completely derail your retirement plan,” said Hegna. “Having any plan for long-term care costs is better than no plan.”
Don't Forget to Budget for Health Care
“The biggest expense category that is often ignored in retirement planning is healthcare,” said Epperson. “A recent Fidelity report found that a 65-year-old couple retiring in 2018 will spend about $280,000 on average on out-of-pocket health care expenses and premiums throughout their retirement. This assumes they are both on Medicare. This is just an average amount, and could be higher or lower depending on how healthy you are and how long you live.
“You can plan ahead for these expenses by making sure that you will be adequately insured for healthcare, long-term care and disability expenses if needed in retirement,” she said. “You can also start to stash money away now specifically for health care expenses by putting away money tax-free into a Health Savings Account as long as you also have a high-deductible health insurance policy.”
The Biggest Retirement Planning Mistakes — And How to Avoid Them
You might be sabotaging your retirement plans without even realizing it. Top experts shared the biggest money mistake people make when planning for retirement, and how to amend these issues. Click through to read expert words of wisdom to avoid retirement planning mistakes.
Mistake No. 1: Underestimating Your Retirement Expenses
“Although most people believe they will need a lot less money in retirement, people often forget about how they will have to help their kids, how much insurance is going to cost and when they refinanced their mortgage,” said Jenkin. “People should really dig into their current expenses to formulate a more accurate plan of what it will cost them tomorrow.”
Mistake No. 2: Waiting Too Long to Start Saving for Retirement
“When you’re young, retirement seems like it’s a long way off,” said Roth. “It is. But if you’ll start saving regularly when you’re in your 20s (or now, if you’re older), you can set yourself up not only with a secure retirement but the freedom to make other important decisions without worrying whether you can afford to make the moves. If by starting early you’re able to amass a large wealth snowball, that gives you the freedom to quit a lousy job, move to a new city, take a year off to travel, whatever. But if you wait to start saving, you place yourself at the mercy of the whims of fate.”
Mistake No. 3: Not Having a Retirement Plan
“People fail to plan,” said Hegna. “They spend more time planning their yearly vacation, which may last a few weeks. Retirement could last 30, 40 years and they wait until the last minute to talk about it.”
Mistake No. 4: Not Paying Yourself First
“The biggest mistake that people make when planning for retirement is not budgeting for it before they start paying their monthly bills,” said Epperson. “The most important bill you should pay is to yourself for your financial future. If you make sure you can stash away 10 percent of your pay for retirement/long-term savings before deciding what you can afford for rent or mortgage or other expenses, you’ll be more likely to live within your means.”
Click through to read more about mistakes even smart people make in retirement.
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About the Author
Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert.