Financial Moves You Need to Make Before You Retire
Are you financially ready to say goodbye to your work life? Retirement: it is a post-work life where you get to live in leisure, enjoy what you worked and saved hard for.
It is always important to prepare financially well for that chapter of life. It is estimated that the costs incurred after retirement can include health care cost, emergency cost, unexpected costs, market changes and risk factors.
These may seem a lot, but beginning early and using these 5 simple steps can help you attain financial contentment and a stress-free life after retirement.
Prepare An Effective Budget
To prepare for your retirement, you must start budgeting to balance your expenditure and income.
Budgeting is to start listing your possible monthly expenses such as rent, groceries, utilities, loan payments or bills and the income gained to allocate your income on those expenses.
‘learn about the cash flow and help you save better’
It allows you to learn about the cash flow and help you save better.
With an effective budget you can start investing in essential areas while accelerating your monthly savings.
This is a great way to avoid overspending and eliminate other expenses such as house, car, clothing or a vacation.
Budgeting also helps you lead an organised life after retirement where you could look at the insights.
It also presents all the sources of your income including social security payments, disability payments, rent payments, pensions, withdrawal of retirement savings among others.
Debts are financial aids borrowed to manage your finance at required times.
It could be a student loan, personal loan, home loan, loan on investment or other. And, loans after retirement could be hard to manage due to expenses with no income gained. so, try clearing the loans before you retire, also avoid overborrowing and overspending
‘try clearing the loans before you retire’
You can use various methods to eliminate loans such as making extra payments on the balance, biweekly payments, snowball method, enrolling in autopay.
With a student loan, you could consolidate multiple loans into one to make lower monthly payments with an extended period, choosing a repayment plan, loan forgiveness and qualifying for other federal programs.
If you wish to pay off loans sooner, you can contact your loan servicer for Refinancing your Student Loans wherein you will be eligible to get a lower interest rate and clear loans sooner.
We also recommend you to avoid borrowing the credit card debts and to make regular payments.
Check your Asset Allocation
Asset allocation is a combination of your retirement portfolio at assets such as funds, stocks and bonds.
The bonds and bond funds give stable income whereas the stocks and equity funds provide high growth opportunity but they are volatile.
‘you may prefer a conservative allocation which could protect your portfolio’
For your retirement, you may prefer a conservative allocation which could protect your portfolio from the variations of the market.
Under this comes the Individual Retirement Account(IRA) and 401(k) plans, where you save for the retirement funds and will be able to access the money post-retirement.
Make sure upi invest properly and not on the target-date retirement funds to avoid reallocation of funds.
For instance, when you’re not sure where your allocation should be, use the 110 rule by subtracting your age to it.
This gives you the percentage of your portfolio allocated on the stocks and equity funds.
Numerically at the age of 30, your portfolio contains 80% equities and 20% bonds. At 50, it is 60% equities and 40% bonds.
We suggest you have a track on your asset allocation.
Decide a Timing on your Social Security Claim
Use your account with the social security website to review your claiming options and as you log in, you can access the expected benefits and your Full Retirement Age(FRA).
‘continue working and delay your social security claim to reap more benefits’
FRA is the age at which you qualify for the standard benefits. With social security, you can claim those benefits early as 60 but it may decrease your monthly benefits or delay it to 70 where it increases.
However, for your Social Security claim, consider your savings, your health conditions, your job security.
So if you are healthy and happy with your job, it’s better to continue working and delay your social security claim to reap more benefits.
Have a Back-Up Plan
After continuously planning and preparing for retirement, it may not go according to your plans.
At times you might want to retire at 60 or delay your retirement as long as 70.
Hence think through different scenarios and have a backup plan when things seem to go out of plane. They include early filing of social security and downsizing your home.
‘to generate income is best rather than depending on retirement funds alone’
You may also choose an employment sponsored retirement plan where your paycheck is given after deducting for your retirement.
After working for several decades the amount you paid involuntarily will give you enough to sustain life after work.
Another idea is investing in real estate where you could purchase a rent out property and generate income.
Income obtained will help life after retirement and also it is gained without getting hands-on.
Hence, using other options to generate income is best rather than depending on retirement funds alone.
When you plan your retirement well, you can enjoy your retirement well instead of worrying about your financial conditions. It is better to start while you’re still young.
However, it is never too late to save for retirement but it’s important to set goals when you still have time and decide to work on accomplishing them to enjoy later without any burden.
If you haven’t started saving yet, we suggest you start soon and follow these steps to amplify the retirement savings.
Refer to https://www.usa.gov/retirement to learn about how to plan for retirement, gain pension benefits and how Social Security works.