When it comes to retirement planning, fortune favors the prepared. However, according to GOBankingRates’ recent survey, few Americans feel prepared.
Of the 1,045 respondents, 33% said that they’re most concerned about running out of money in retirement. 22% are worried about the cost of healthcare, while another 21% worry about maintaining an income stream. The concerns of the final 24% are split between having too much debt, drawing on Social Security and choosing quality investments.
Across all of the generations — from boomers to zoomers — the most common concern is outliving retirement savings. While there are a plethora of surprise expenses that may arise during this period of life, you can prevent your retirement savings from going dry by anticipating expenses and doing some thoughtful planning beforehand. Check out these tips from financial experts to avoid running out of money in your golden years.
Understand Your Spending Habits and Try To Cut Back Wherever Possible
In order to ensure that you won’t run out of money during retirement, you first need to determine how much money you are currently spending.
“This seems simple enough, but many people do not properly track their expenses and underestimate how much they’re spending monthly and annually,” said Steve Sexton, financial expert and CEO of Sexton Advisory Group. “Understanding how much money comes in versus how much goes out is the first step to cultivating lifelong financial habits that can improve the quality of your life, and ultimately, set you up for a more financially secure retirement.”
Consider cutting back on expenses by cutting back on dining out, looking for cable alternatives, finding a less expensive phone or phone plan, and refinancing your mortgage to a lower interest rate.
Aggressively Contribute to Your Retirement Accounts
Ensure you will be set up to retire without fearing whether you have enough in your savings accounts by regularly contributing to retirement accounts and meeting the employer match at a minimum.
“If your employer offers a 401(k), sign up for this immediately,” Sexton said. “Once you’re enrolled, your contribution will be automatically deposited and invested. Your contributions will not be taxed, and the funds in the account will grow tax-deferred until you begin to withdraw money in retirement. If your employer offers 401(k) matching, try to contribute, at a minimum, equal to the amount your employer will match.”
If your employer does not offer a 401(k), be sure to open a Roth IRA and consistently invest in this type of account instead. Your money will still grow tax-free and you can generate a noteworthy retirement savings nest egg this way.
Build an Emergency Fund
Avoid getting caught off guard by medical and life emergencies you might not be prepared for by creating an emergency fund.
“Set up your emergency fund so you don’t have to dip into retirement savings in the event of an emergency or unexpected life event,” Sexton said. “I recommend setting aside at least six months’ worth of savings so you’re covered if you lose your job, get in an accident or have to cover unexpected medical bills.”
Prepare For High Healthcare Expenses
Preparing for retirement also means you might need to allocate more funds toward unexpected healthcare expenses that may arise.
“Remember that you’ll also need to budget for bigger health costs to accommodate more frequent health conditions as you age,” Sexton said. “Inflation, travel and overall lifestyle costs during your retirement should be taken into consideration as well. These factors can influence your ‘magic number’ for financial security in retirement.”
Consider a ‘Hybrid Retirement’
Don’t be afraid to continue working on a side hustle or cutting back on hours at your regular job during retirement to offset extra costs.
“Having some sort of semi-retirement income can be much more beneficial than many retirees think,” said Joe Allaria, CFP, wealth advisor at CarsonAllaria Wealth Management. “Even if the semi-retirement income is a fraction of what your earnings were during your working years, part-time income can help you delay withdrawals, or at least decrease them, allowing whatever is left in your portfolio the opportunity to grow and compound for a longer period of time.”
Delay Social Security To Grow Your Benefits
Concerns for the future of Social Security are at the forefront of many retirees’ minds. Although delaying retirement may strike worries that retirees will be awarded less funding, Allaria debunks these concerns.
“Many people don’t like the idea of delaying Social Security benefits because they fear they won’t live long enough to draw enough out, and they also don’t like the idea of taking extra withdrawals from their own money (their portfolio) and not touching their Social Security benefit (the government’s money),” Allaria said.
“However, taking portfolio withdrawals in lieu of starting Social Security benefits could actually lead to a higher portfolio value down the road. More withdrawals now could mean fewer withdrawals later as your Social Security benefit becomes higher, as a result of delaying benefits.”
Cultivate a Healthy Relationship With Money
Preparing for retirement may mean taking a good long look in the mirror to ensure your current financial habits will not negatively impact your retirement and leave you penniless several years in.
“Having a healthy relationship with money starts with having a good relationship with yourself,” Sexton said. “This means being honest with yourself about your spending habits, investing in your health and mental well-being, and setting yourself up for financial safety and success in the long run.”
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