How to Keep Growing Your Savings in Retirement

Disclaimer: This post is sponsored by PSECU, a Pennsylvania-based credit union.

Ah, the golden years, that magical time when people trade in their workers’ aprons and finally get to enjoy some much-deserved rest and relaxation.

However, one’s comfort level during retirement depends upon having an adequate nest egg. In the wake of the 2008 financial crash, many people dipped into retirement savings or increased the amount of debt they carried by taking out home equity lines of credit and the like. This means many seniors today experience a bit of anxiety when looking at their retirement funds, wondering if they will have enough to carry them through comfortably for the rest of their days.

Fortunately, techniques for continuing to grow savings even in the golden years exist, and people’s money can continue working long after the employee has hung up their hat. Here’s how.

Catch up on Your Contributions

Those 50 or older who remain in the workforce should take full advantage of the IRS rule allowing for catch up contributions to your 401(k) or IRA. Workers can contribute up to $6,000 per year without tax penalty. However, the vast majority of workers with 401(k)s can truly benefit from a retirement boost, as the contribution limit for those 50 and older changed to $24,000 per year, much more than the previous contribution limit.

Continue Paying Yourself

A long, long time ago, indubitably some economics instructor lectured on the importance of investing in savings even before paying other bills. Today, placing your savings goals on autopilot doesn’t even require a trip to the bank.

Those receiving direct deposits can simply call or log into their financial institution and direct them to divide income among checking, savings and investment accounts. Another tip — avoid linking debit cards to savings accounts. Merely having to drive to the bank to make a withdrawal versus hitting the ATM makes it easier to decline impulse purchases.

Avoid New Debts

Nothing can cut into retirement savings like high-interest credit cards that need paying each month. Avoiding new debt when nearing retirement should be a logical choice.

Unfortunately, too many people anxiously awaiting their retirement ages yield to the temptation to buy their dream car or take a no-expenses-spared vacation. While driving into the sunset in a shiny new Porsche sounds tempting, adding a $600 monthly payment may break one’s retirement budget. Try to resist the urge to splurge.

Consult Your Financial Planner

Your investing needs change as you age, and by the time you reach retirement age, dropping high-risk investments in lieu of lower-risk vehicles makes sense. By age 60, approximately 75 percent of any investment portfolio should consist of low-risk assets such as bonds. Contacting a qualified financial planner on an annual basis can help stretch nearly any retirement budget.

Have a Little Patience

Many people know waiting to retire means earning more in Social Security income, but holding off on pulling money from other retirement accounts may result in significantly increased gains. For example, those with $1 million in investment assets by age 60 can add another half-million dollars simply by waiting to retire until age 66, assuming a 6.5 percent return on investment.

Consider Downsizing

Many retirees find themselves rattling about in homes meant for growing families, not those approaching their sunset years. Larger homes require more money to heat and cool, increasing annual costs of living significantly.

Given the current stability in the housing market, the time to downsize has come. Additional proceeds from the sale of an overly large property can pad any retirement budget, and the savings in heating oil, not to mention in property taxes, cuts expenses at the same time.

Make Money with Hobbies

The entire point of retirement means finally shaking off the mantle of work responsibilities and spending time doing what one loves. Some hobbies can generate additional retirement income.

Seniors savvy about fitness can seek Silver Sneakers instructor certification and take up teaching classes. Crafty seniors can create unique gifts to sell at local fairs. Animal lovers can open a pet-sitting business.

Stepping out of the workforce means increased loneliness for many seniors, and harnessing a hobby helps keep them involved in their community while providing extra money.

Finally Dig Those Discounts!

Don’t overlook the power of the senior discount! Just about every grocery store hosts a monthly senior day where those 55 or older receive an additional percentage off purchases. Use these days to stock the pantry.

In addition, many Medicare supplement plans come with free fitness memberships. Why not work out when it’s free? Movie theaters, bowling alleys and other entertainment venues likewise often offer senior discounts.

Happy Retirement

Just because a senior retires from the workforce doesn’t mean their money has to stop working for them. By managing money wisely, one’s golden years can become the best ones ever. PSECU, a credit union in Pennsylvania, has created this interesting graphic on the average retirement savings by age — check it out here!

Investing and Spending – Enjoying Your Retirement

Written by Sally Perkins

Retirement and the associated saving is a source of anxiety for many people. You spend an entire lifetime working and trying to take the stress out of retirement funding; so, where’s the fun in continuing to stress and worry once you’re actually there? Of course, it’s never actually as simple as stopping your worry.

This article will shed some light on the best ways to build and manage your retirement fund to reduce your anxiety over saving to the absolute minimum level. Then, keep reading to see some of the best ways to spend your money to really enjoy the years of job-free freedom – without breaking the bank – and whilst also keeping yourself healthy.

Preparing – How To

The United States has basic retirement benefits available for those once they reach the prerequisite age. These reach up to around $15,000 and provide a basic income to those in need. However, the federal government recommends you aim for 80% of your income in retirement. So, if you’re someone who earns $100k a year, you’ll need $80k to continue our quality of life. How do you achieve that?

Unlike some other countries in Europe, the USA has no mandate of employers to provide pensions. This leads many employers to offer up-front salary improvements and bonuses in place of pension contributions – which is a good or a bad thing, depending on your self-control. The Crediful Credit Guide (https://www.crediful.com/) suggests vehicles such as the Roth IRA provide a far superior saving environment – and one you control – as opposed to many company led pension schemes.

The big benefit of the Roth IRA is that it takes away future tax burden and obligations, which can give relief when you’ve reached retirement age. You can super-charge your pension by taking out personal investment plans in addition to the IRA, or running one alongside an employer-sponsored 401K.

Enjoying Yourself

Once you hit retirement and have access to your fund, either as a lump sum or as a dividend-style trust arrangement, it falls on you to moderate it properly. This is where some stumble finding themselves unable to exercise the correct level of self-control when adapting to 100% free time from a 9-5 job or similar. For this purpose, consider employing the dynamic spending and saving strategy to keep a firm grip on your economic situation.

With that in mind, you might be thinking – what can I enjoy? What hobbies exist that will bring enrichment and stimulation whilst remaining relatively frugal?

Model Construction

Airfix planes and LEGO style buildings may seem to be things of your childhood. However, the companies touting these products are actually targeting and directed towards generations above just ‘kids’. In fact, LEGO attribute some success to ‘mature’ sets following the downward trend of their brand. These sets aren’t bank-breaking and the customization can offer years of enjoyment for minimal outlay. Models and airfix-style can even benefit your health. The tasks are often relaxing, stimulating your mind and demanding concentration. They can also help with motor skills, which can fall by the wayside in retirement.

Geocaching

Geocaching is a very 21st century hobby that involves little more than a set of maps and any rudimentary GPS device. People all over the world have spent time to hide trinkets and treasure around their countries, posting treasure maps online to lead fellow community members on an entertaining trail. Many contributors specifically pick picturesque trails or tricky clues and navigation methods, and encourage the treasure hunters to detail their journeys and share them online.

These digital treasure hunts mean that you can get involved with a community and make new friends online. Furthermore, you’ll probably earn a good bit of exercise getting to the remote places and if you have a camera in hand – likely as geocaching can be done with your phone – get some spectacular shots of nature.

Martial Arts

Finally there is martial arts. Martial arts is often free, if not subject to small donations to your chosen place of practice. They are again a great way to get out and about, and don’t require a huge level of physical fitness. Martial arts are typically about turning force against itself – acting as a pivot against the strength of other people. Getting involved is a great way to stay healthy physically, and most disciplines have an edge of mental well being too, integrating their rigorous martial arts mentality with strengths plucked from eastern spiritualism.

The financial planning aspect of retirement can be time consuming – even boring. However, the options are there for you to make a success of yourself. And once you retire, there are many inexpensive ways to enjoy yourself and build skills whilst maintaining your health, leaving your hard-earned career cash for the rainy days and big trips ahead.

Tax Tips in Retirement

Written by Sally Perkins

Many retirees may assume that they don’t have to pay as much income taxes since they don’t work. Though a single or married retiree may be in a lower tax bracket, certain retirement vehicles are still taxable. In fact, you may have to pay taxes on social security if you are in higher tax bracket. But if you plan ahead and learn the tricks of how to manage your taxes, you can be prepared for that dream trip to Europe or the extra indulgence you’ve been hoping for. So when tax planning year to year, consider the following:

Manage Your Expenses

It has been said before, but managing your expenses is a key element to a successful financial retirement. If you can keep your adjusted gross income below $37,500 in 2017 your tax burden will only be 15%. So try your best to avoid a higher tax bracket when you are withdrawing from any of your savings accounts, IRAs, 401(k)s, etc. Follow a budget, a retirement income strategy, and how you are going to pay for potential healthcare costs.

If you are considering retiring, try to have your house paid off as you can then avoid using retirement money for this expense.

Life Insurance Legacy

If you want to leave a legacy or if your dependents may have debts to pay on your estate, consider a life insurance policy. The death benefits and payout are not taxable. However, if you borrow against the policy you may be subject to taxes.

Withdrawal Strategy

Some retirement income is taxable. As mentioned earlier, social security is taxable if you are in a higher tax bracket. But, for example, if you are withdrawing money from a Roth IRA it isn’t taxable if you contributed the money over 5 years ago. The general advice given by many financial planners is to withdraw money from your retirement income in the following steps:

  • Taxable accounts, like investments
  • Tax deferred accounts, traditional 401 (k)
  • Tax exempt accounts, Roth IRA

The idea behind this tiered strategy is 401(k)s and Roth IRAs can continue to grow without any tax penalties. In your investment accounts there is no tax shelter, so you might as well use investment money first. Then, if you are going to have a year where your expenses are going to increase, use the tax exempt money so you won’t have to pay income tax on the withdrawal.

This is an important concept and may be worth talking to a financial planner about.

Annuities

Annuities have a tax benefit as well. Annuities are an insurance product where the individual purchases an investment and the price paid is converted into periodic payments to the retiree. There is a lot of flexibility on how often you get paid (monthly, quarterly, annually), when payments start to occur, how long you want the payments for, etc. Setting up a payment plan can take out some of the guess work.

If you have to cash out the annuity because of an emergency, you will have to pay income taxes on all earnings. But if you hold onto the annuity and paid for it with pretax money, then the payments will be taxable. If you use after tax income to buy the annuity, then you will only be taxed on the earnings.

Deductions

Of course all taxpayers want deductions! Individuals over 65 used to be able to itemize for medical expenses that were over 10% of their adjusted gross income, but that changed in 2017 to 7.5%. Keep this in mind when it comes to tax time, but stay organized and track your medical payments as you never know when your medical expenses will be high. Medical expenses include health and long term care premiums, dental care, prescriptions drugs and other health care expenses.

Another deduction that some people miss is dividends from investment income which are taxed lower than regular income, and you can still invest as a retiree. If you still run a business, even part time, your business expenses are deductions. Downsizing houses can be attractive and if you sell your home and you’ve lived in your home at least two of the five years before you sell the property, the equity won’t be taxed.

And if you are considering selling and moving…

Tax Free States

Florida may be infamous for having many retirees, and for good reason, there is no state income tax. There is also no state income tax in Nevada and Texas. The weather is warm in all three! So though there may be an expense to moving, you could recoup that by saving on taxes. If you are considering moving to warmer climates, look into these states and research the cost of living.

Finally, with a little strategic planning, you won’t be giving all your hard earned retirement income to the IRS. Have a budget, try not to have a mortgage, plan how you are going to withdraw income, look at different income vehicles, and consider your tax deductions. It will be worth the time investment to carefully plan your income streams.