21 Secrets All Baby Boomers Need to Know About Money
Baby boomers might be the country’s richest generation, but that doesn’t mean all boomers have a firm grip on their finances. While some will skate through retirement with paid-off houses and cushy retirement funds, others are ill-prepared for these years, according to Legg Mason’s 2017 Global Investment Survey. The survey found that about half of the world’s baby boomers “have not yet saved enough for a comfortable retirement.” If you fall into this category, all hope isn’t lost. Whether you’re an older or younger boomer, there are plenty of ways to get your financial ducks in a row.
Need a little guidance? From saving to investing, here’s what baby boomers need to know about money.
3 Retirement Saving Secrets
A comfortable retirement depends on how much you sock away in your early years. But even when you know the importance of saving for retirement, coming up with extra cash can be challenging. If you’re approaching retirement and feel you don’t have enough to maintain your lifestyle after leaving the workforce, read on and learn secrets to grow your retirement account.
1. Estimate Retirement Expenses
If you’re at the younger end of the boomer generation, retirement calculators can estimate how much you need to save for retirement, but these calculators only consider half the picture. To thoroughly prepare for this time in life, you need to remove the guesswork and understand your real spending needs, said Rob Williams, director of income planning for Charles Schwab.
“Begin thinking about when you want to retire, where you want to live and what you want to do,” Williams said. “Will you travel or work part-time, or move to a different city? Once you know your vision, you can determine how much your retirement is going to cost and how you are going to pay for it.”
To begin planning, consider whether you’ll remain in your current home or downsize to a cheaper, smaller place. Also consider whether you’ll move to an area with a lower cost of living. These factors affect how much you’ll need, and how far you’re able to stretch your retirement dollars.
2. Play Catch-Up
Being behind on retirement planning can be discouraging. But rather than focus on what you didn’t do when younger, focus on what you can do today. If you’re younger and anticipate working another 10 or 15 years before retiring, use this time to catch up and beef up your retirement savings.
“Starting at age 50, investors can contribute an extra $6,000 to their 401k for an annual contribution of $24,000, and an extra $1,000 to their IRA for an annual contribution of $6,500, per current IRS rules,” Williams said.
Read More: 50 Things Every 50-Something Should Know About Retirement
Boosting your retirement contributions might seem impossible if you don’t have a lot of disposable income. Just know that any sacrifices you make now to save more can have a tremendous impact on your nest egg. Hitting your goal can be as simple as taking one or two fewer vacations a year, or saving windfalls you receive. These include tax returns, an inheritance or a year-end bonus.
3. Skip the College Fund
Some younger boomers take pride in knowing they’re setting aside cash for their child’s college education. Maybe you don’t want your children to graduate with a mountain of student debt.
There’s nothing wrong with paying for a child’s college expense, but you shouldn’t pay for college at the expense of your retirement account. If you’re in a position to build a college fund without sacrificing your own nest egg, wonderful. If not, prioritize retirement over the college fund.
The reality is, there are plenty of ways for your children to pay for their college educations, but there are only a few ways to fund your retirement. If you put all your money toward supporting their college educations and neglect your own savings, you could end up working well into your retirement years, or having to drastically decrease your standard of living upon exiting the workforce.
3 Secrets to Saving Money
Before you can beef up your retirement account, you might need to free up cash in your budget. Between mortgages, insurance and other everyday expenses, cash might be hard to come by. But whether you’re a younger boomer or an older one, saving money as you age is easier than you think. Read on for money saving secrets you can implement.
1. Rent Out Unused Space
With your kids out the house, you might have more space than you need. Rather than letting this space go to waste, renting it out is an easy way to earn money.
The thought of inviting a stranger into your home might be less than ideal. But if there’s a space that’s separate from the rest of the home — perhaps a basement apartment or a room over the garage with its own entrance — you could have an income stream right under your nose.
“Stats show that approximately 80 percent of those over 65 own a home, and many have unused space that they can rent out to long-term housemates,” said Wendi Burkhardt, CEO of Silvernest, a roommate matching service for baby boomers and empty nesters. “Through home sharing, they can earn extra income that can be put toward their nest egg, mortgage payments and other living expenses. There’s also the added bonus of splitting bills and expenses.”
Even if you only rent out the space for $500 a month, that’s approximately $6,000 a year of passive income that can go toward padding a retirement account.
2. Maintain Your Health
It’s no secret that health can deteriorate with age, and developing a chronic illness could result in paying more for doctor visits and prescription medications.
You can’t always control your health — some illnesses occur spontaneously or due to genetics. Even so, being proactive and making healthier choices could prevent some illnesses, reduce your healthcare costs and keep your medical bills low.
You might slow down physically and have less energy in your 50s, 60s and 70s, but there are plenty of ways to stay active and healthy as an older adult.
For example, find time for regular physical activity such as walking, biking or swimming. Maintain a healthy level of stress. A diet rich in fruits, vegetables, nuts and whole grains may also contribute to better health, helping you maintain a healthy weight and reduce inflammation.
3. Build an Emergency Fund
While saving for retirement might be priority number one as a younger boomer or an older boomer preparing to retire, don’t completely neglect an emergency fund. These funds are crucial regardless of age, with financial experts recommending a minimum of three to six months’ worth of income in reserves.
Maintaining an emergency fund in retirement provides liquidity for unexpected expenses. These include home repairs, auto repairs or medical expenses. Because some retirees don’t work part-time after retiring from their careers, they live on fixed incomes and don’t have much extra cash.
If you lack disposable cash after monthly expenses, it only takes one emergency to drive you into debt. An emergency fund, however, can soften this blow and help you avoid credit card debt. There are easy ways to make saving for an emergency fund a regular habit.
3 Investing Secrets
Building an investment portfolio helps you achieve a solid financial future. If you don’t know much about investing, you probably don’t know where to start, and you might have little knowledge of investment strategies to reach your goal. If you’re a younger or older boomer looking to increase your nest egg, you don’t have to be a financial guru to hit the jackpot. Here’s a look at investment secrets to increase your net worth.
1. Use Target Date Funds
Investing requires a measure of time and confidence, which you might not have. If you don’t have the time, interest or comfort level to manage your own retirement portfolio, Paul Jacobs, a certified financial planner and chief investment officer at Palisades Hudson Financial Group in Atlanta, suggests target date funds as a useful destination for some or all of your retirement assets.
“Target date funds manage very diversified portfolios of stocks and bonds, and gradually reduce the risk inside their portfolios before and after retirement,” he said.
Although these funds offer a simple investment solution by automatically resetting your mix of stocks and bonds, Jacobs doesn’t recommend an entirely hands-off approach. He encourages working with a financial advisor if you need to adjust your strategy.
“It’s still important to understand your target date fund’s strategy, and how it’s being invested,” Jacobs said. “Different fund companies have very different approaches to managing target date funds, and your fund may have more exposure to risky investments than you’d prefer. In addition, target date funds use a one-size-fits-all approach, which may not be appropriate for everyone.”
2. Rebalance Portfolio and Create Cash Flow
Rebalancing is an essential component of investing to minimize risks, yet a Wells Fargo/Gallup survey found that only 54 percent of investors with personal financial advisors “rebalance their investment portfolio (buying or selling funds in order to restore the portfolio to its original asset allocation) at least once a year.”
“Selling investments as part of the annual rebalancing of your portfolio could provide another opportunity to generate cash flow,” Williams said. “Annual portfolio rebalancing is especially important when you’re retired, as your allocation should generally become more conservative as you age, especially if you plan to tap investments, rather than leave them to beneficiaries or other goals, in retirement.”
You might feel that rebalancing is overrated, but periodically adjusting your holdings is crucial to staying on course. Whether you’re still working or already retired, speak with your financial advisor to see what adjustments are necessary to strengthen your portfolio.
Related: The Dangers of ‘Set It and Forget It’ Retirement Plans
3. Invest Your Raise
If you’re fortunate enough to get a raise every year or even every other year, fight the urge to spend this money on stuff you don’t need. Some people take their raises and spend it bigger homes, more expensive cars or lifestyle upgrades. But if you’re on the younger end of the spectrum, extra income can give your retirement account a much-needed boost.
“I believe for most people the best ‘secret’ is to set up a systematic investment plan to invest at least 10 percent of income — and when they get a raise, invest at least half of it,” said Ilene Davis, a certified financial planner and author of “Wealthy by Choice: Choosing Your Way to a Wealthier Future.”
If you don’t get a raise, Davis advises increasing your percent of income saved by at least 1 percent a year, and then invest these savings in a diversified portfolio of stocks.
3 Secrets to Paying Off Debt
You might envision being debt-free by the time you hit retirement, but life doesn’t always go according to plan. You could be saddled with student loan debt (if you’re a younger boomer), credit card debt, mortgage debt and auto loan debt, which can hang over your head like a dark cloud. You can’t snap your fingers and wish debt away, but there are strategies for paying down balances and releasing the financial burden.
1. Refinance Your Mortgage
If you need extra cash to pay off debt like credit cards or student loans, refinancing your mortgage might be the answer. A refinance replaces your existing mortgage with a new mortgage, and in most cases, your new mortgage has a lower mortgage rate. This can reduce your monthly payment and free up cash.
Let’s say you refinance and reduce your monthly payment by $300 a month. That’s approximately $3,600 you can put toward paying off debt. Once you’ve erased the debt, put this money toward increasing your retirement contribution if you’re a younger boomer, or building your emergency fund if you’re an older, retired boomer.
You might be reluctant to refinance because the process creates a new mortgage loan and resets your payoff schedule. Keep in mind, however, that you don’t have to refinance for another 30 years. There’s the option of refinancing into a mortgage with a payoff date comparable to your original term, perhaps 10 or 15 years.
2. Don’t Cosign for Kids
What parent doesn’t want to help their child get a head start in life? This is why some younger and older boomers cosign student loans, mortgages and auto loans for their children and grandchildren. But while the gesture is certainly welcomed by offspring, cosigning a loan is a risky move that could jeopardize your finances.
As a cosigner, you agree to pay a debt if the primary signer defaults or can’t pay up. This means you could become responsible for someone’s student loan payment, mortgage payment or auto loan payment. If so, money that could have strengthened your retirement account goes to clearing a debt.
3. Live Below Your Means
There’s no rule that says you have to wait until retirement to downsize. If you’re 55 years of age and thinking about retiring in the next 10 to 15 years, downsizing now creates an opportunity to improve cash flow and either pay off debt or build your nest egg.
Profits from a home sale might be enough to pay cash for a smaller, cheaper home, or at least enough for a hefty down payment, resulting in an inexpensive mortgage payment.
Now might also be a perfect time to downsize, especially if your last child has left the nest and you have more space than you need. Besides, downsizing and living below your means doesn’t only decrease your home payment, it also results in cheaper utilities, lower property taxes and lower maintenance costs.
3 Social Security Secrets
Some boomers can’t wait until they’re eligible for Social Security benefits. This benefit, combined with income from an IRA, 401k or pension, might be more than enough to maintain their lifestyles after leaving the workforce. If you’re thinking about filing for benefits in the near future, here are tricks to maximize your checks.
1. Delay Social Security Benefits
Younger boomers can start collecting Social Security benefits as early as age 62. According to Williams, however, many file for Social Security too early, leaving thousands of dollars on the table.
Just because you’re eligible to start receiving benefits at age 62 doesn’t mean you should. Social Security is an important part of retirement, with many boomers relying on this income to sustain their lifestyles. Because this money is guaranteed for life and adjusted for inflation, it only makes sense to maximize your benefit and get as much as you can.
To do this, however, you should delay collecting benefits until at least full retirement age (between 65 and 67), or hold off until age 70. The longer you delay collecting benefits (up to age 70), the bigger your checks become.
2. Suspend Social Security Benefits
What if you began collecting Social Security benefits prior to full retirement age, and later regret this decision? It might come as a surprise, but there’s an option to voluntarily suspend Social Security benefits and restart benefits once you’re older.
This might be necessary if you retired early with intentions of never returning to the workforce, but then decide to get a job. If you’re able to make it financially without Social Security, suspending benefits for the next few years can result in a bigger check down the road.
3. Get Half of Your Spouse’s Benefit
If you’ve been married to your spouse (or had an ex-spouse) for at least 10 years, there’s a Social Security benefit you could be overlooking. If you were the lower earning spouse, you might be eligible to receive up to 50 percent of your spouse’s or ex-spouse’s retirement benefit in addition to any benefit you’re entitled to.
There’s a caveat: To receive the spousal benefit, your spouse must have claimed his or her benefit. Also, you can only receive an ex-spouse’s benefit if you haven’t remarried.
3 Mindset Secrets
Young adults and middle-aged adults often have time to recover and rebound from poor money decisions. This becomes harder once you approach or enter retirement, so it’s important for boomers of all ages to change their views about money to keep their finances on track. The next few slides explain what you need to do.
1. Change Your Mindset About Money
The closer you get to retirement, the more important it is to change your mindset about money, warns Patricia Stallworth, a certified financial planner and CEO of PS Worth, a coaching and educational firm.
“My No. 1 money tip for boomers is to make a shift in their money mindset — in other words, to change their money thoughts and habits around spending and saving as they get closer to or in retirement, ” she said. “Continuing to spend or think about money the same way they did (while) working full-time — when they could quickly recover from overspending — can lead to disastrous results.”
You might experience a shift in income, with your retirement income being only a percentage of your income while working. So, you’ll probably have to plan cheaper vacations, or reduce spending on shopping or entertainment. Preparing mentally for this lifestyle change can make the transition easier.
2. Put Yourself First
Preparing for retirement also means putting yourself first. At times, your children or grandchildren might fall on hardships and need a handout. As a rule of thumb, you should only lend what you can afford to lose. But even when you have extra money to spare, consider putting the brakes on the money train — particularly if you’re slowly becoming everyone’s ATM.
It might be natural to come to your children’s rescue every time they fall on hard times. Just know that it’s not your responsibility to constantly bail them out, especially if they have a habit of making poor choices with their money.
Your retirement income only stretches so far, so be smart with how you handle your money. Giving your children or grandchildren money for a down payment or cash to erase their personal debt benefits their financial well-being, but it can hurt your retirement.
3. Talk About Money
As an older generation, maybe you were taught never to discuss money with friends. Not to say you should start divulging all your personal financial information, but changing your mindset on this topic and being open to money discussions could provide much-needed education and help you better prepare for retirement.
Through general money discussions with other boomers, you could learn investment strategies, savings tips and other useful information. Maybe you weren’t aware of the benefits of delaying Social Security until age 70, or maybe you didn’t know about the spousal benefit. The more you talk about money, the easier it’ll be to avoid critical mistakes.
3 Secrets to Working During Retirement
Some people can’t imagine working past age 62. But if you are relatively healthy and full of energy, you might be able to work an additional few years and maximize your retirement income. Here are a few tricks for earning money and working during retirement.
1. Don’t Stop Stashing Away Money
Collecting Social Security benefits doesn’t mean you have to stop earning money. You’re allowed to work while receiving Social Security benefits, although there are limits to how much you can earn without reducing your benefit.
Working a part-time job has its advantages. You’re in a position to build a larger emergency fund, and the money you earn during this time increases future benefits as well as benefits your survivors receive.
2. Sell Your Business
If you’re a business owner and thinking about retirement, one option is hiring a general manager or getting a family member to run the company. This approach can generate passive income for you. But if you fear the company consuming your time and energy, you might consider shutting down instead. Before walking away from a potential cash cow, explore the income potential of selling the business.
“A lot of business owners do not realize the immense value that lies in their businesses, and that selling can set them up for a secure, stress-free retirement,” said Joel Keylor, co-founder and CEO of Tresle, a platform that connects established private companies with verified buyers and capital.
The money received from the sale of a business is more lucrative than simply walking away, and could provide the cash you need to maintain your lifestyle in retirement.
3. Don’t Forget to Sign Up for Medicare
If you’re still employed at age 65 when you become eligible for Medicare Part B, you might delay enrolling if you’re receiving health insurance through an employer-sponsored group plan.
You’re not required to sign up for Medicare Part B at this time, but if you don’t enroll when you first become eligible, you could face a late enrollment penalty, which increases 10 percent for every 12-month period you’re not enrolled. This could hurt your retirement finances, so make sure you sign up when you’re eligible.
The Bottom Line
Retirement is your time to kick back and do what you enjoy — relaxing, traveling or starting your own business. But to enjoy this lifestyle to the fullest, you have to prepare early.
Whether you’re a younger boomer still padding your nest egg, or an older boomer already in retirement, knowing how to manage your money can result in a solid financial future and provide a sense of security in your later years.