How to Better Prepare for the Financial Side of Retirement

Since starting Retirement-Only the Beginning I have focused on the non-financial side of planning for retirement. I discovered early on there was an awful lot of attention and effort focused on getting the money side of the equation right while relatively little was dedicated to answering the all-important question “what will I do in retirement?” It is all well and good to find yourself able to afford to retire but what will you do once you get there? My blog has tried to do the best to share ideas and real life suggestions that may shed light on ways to better prepare the way to make the most of your new found freedom.

That said the financial side of preparing for retirement cannot be ignored. Before we can make the move we have to know we will be able to support the lifestyle we hope to live. Even after we retire we still need to stay on top of our game. We should not just invest and forget or we may find ourselves in a less than ideal situation down the road. As I live my second act rarely a day goes by that I do not read of some new challenge retirees are facing.

Health care costs scare the heck out of me. For the first time since we have been members of the working world my wife and I have to pay for our own health insurance. A bit ago I started researching Obamacare to get an idea of what to expect. But it was early in the game and there were still a lot of moving parts. What I did learn was that it would not be cheap to provide the level of coverage we would need as we aged. For the next three years we have the option to buy COBRA which gives us the same coverage we have always had (medical, dental, vision). It is not cheap but it is a necessity. What scares me is what our options will be when we can no longer extend COBRA. And what will is cost.

Investing in the right areas is and will remain ever challenging. Is it best to focus on growth or value, bonds or stocks, mutual funds or ETFs, and what about the latest investment vehicles to hit the streets? How are we supposed to keep it all straight? For we retirees one of the scariest thing is if we make a mistake we do not have the luxury of time to put things right. I try to educate myself as best I can. I picked up an online course on fundamentals of investing to better understand the terminology and concepts behind the financial markets. I subscribe to the Wall Street Journal (something I never did while I was working) to get a better business slant on world events. I have been listening in on various webinars offered by investment companies to better educate myself. These webinars have been quite helpful covering a variety of topics addressed by experts in the subject matter. I am signed up for what should be an interesting session hosted by Liberty Bank titled 6 Retirement Planning Mistakes to Avoid as I continue my ongoing education.

Are there other retirement traps I should look out for?

I read about the importance of long term care insurance to provide for us should we at some point become unable to care for ourselves. But the costs are significant and I worry about the viability of a company 20 years from now when I might need the money. Is it worth it? Do I need it?

Social security will be a significant part of our retirement as long as it is still there. Even if the program remains in place when is the best time for me to start collecting benefits? Too early and I risk what could be bigger checks if I live longer than the average.

The list goes on and no one seems to have all the answers. So we continue onward doing our best to make informed decisions and exposing ourselves to the least possible risk we can to achieve the returns we desire. It is a perpetual balancing act. Fortunately there are a lot of smart people to help us out. And thankfully I have come to realize I am never too old to learn something new.

If you have any favorite websites or links to information that may help the rest of us navigate the retirement jungle, feel free to share.  :)

5 Ways to Prepare Your Money for Retirement

By Jane Brown

After 30 or 40 years of working full-time, you might be ready to hang up your work boots and retire. Retirement can be the beginning of a whole new chapter in your life. For the first time, you’re able to do what you want without a job or employer hanging over your head.

But while retirement gives you new found freedom, your retirement income might be considerably less than your regular income. This can trigger a major lifestyle adjustment, especially if your new income isn’t enough to keep up with your present expenses.

If retirement is in the near future, it’s important to get a handle on your personal finances now. Ideally, you want to retire with as few expenses as possible. This involves cutting back and making personal sacrifices. It can be difficult, especially if you’re used to buying what you want when you want. But there are ways to make the transition a bit easier.

Here are five tips to prepare your personal finances for retirement.

1. Pay off your house

Your mortgage is probably your largest monthly expense. And unfortunately, if your retirement income is only a third or half of what you were earning, a mortgage payment hanging over your head can be stressful and burdensome.

If you’re retiring in the next few years, now’s the time to get serious about paying off your house. Paying off the house early might seem impossible, but if you start making bi-weekly payments or increasing monthly payments, this can reduce how much you owe the bank in interest, thus reducing your principal balance faster.

Then again, retirement might be right around the corner. If you still have a mortgage loan, yet a lot of home equity, you can also look into downsizing. Run the numbers to see how much you can realistically walk away with if you were to sell the house. Depending on where you live, you might be able to sell, and then use the equity to pay cash for a smaller, cheaper place, thus eliminating the burden of a mortgage payment.

2. Pay off your credit card debt

It’s a sad reality, but too much credit card debt causes some people to delay retiring. If retiring slashes your income, the last thing you need is thousands of dollars of credit card debt. Your minimum payments might be hundreds every month, and if you continue to charge, your balance will only grow.

Credit card debt can be the difference between retiring early and working longer than you want. To prepare your finances, stop using credit and only use cash. Also, come up with a plan to pay off existing balances.

Negotiating your interest rates and paying more than the minimum is an excellent start. Also, you can start liquidating personal belongings you no longer need and use the proceeds to pay down balances. If you have more whole life insurance than you need, talk to a financial planner about borrowing cash from this policy. You don’t have to repay this money, but a loan will reduce the value of the policy, and reduce how much your beneficiaries receive.

3. Get rid of a car

If you and your spouse are both retiring and you spend the majority of your days together, see if you can get by on just one vehicle. Getting rid of a car payment can save you hundreds a month, plus you’ll pay a cheaper auto insurance premium and you’ll lower the amount you spend on gasoline and car maintenance. If it doesn’t work, you can always add a second car, or buy a used car with cash and avoid an auto loan payment.

4. Lower utility costs

Even if you’re able to get rid of your mortgage payment, you still have other household expenses like utilities. Gas and electric bills can cut deep into your budget, but you can shop around and compare rates offered by other utility providers in your area (if available) and save. In many cases, you have the power to choose the electricity company you want as your provider, says Amigo Energy in Texas, a retail electricity provider for both residential and commercial customers.

5. Use your senior discount

If you like shopping, going to the movies and dining out, don’t be afraid to use your senior discount. This discount can be as much as 10% to 20% off, depending on the restaurant or retailer. It’s a practical and cost-effective way to enjoy a little entertainment and recreation on a fixed income.

Retirement can be one of the best times of your life. Finally, you have the freedom and flexibility to do what you love. Your income might drop in retirement, but this doesn’t have to slow you down.