Nearing Retirement? Don’t Overlook These Expenses

retirementYou’re getting closer and closer to retirement, but are you prepared? Retirement planning is an imperative step to ensuring that you can live life without stress weighing on you. Unfortunately, many people do not effectively plan and thus leave out important details. Overlooking expenses and not having a quick solution for resolving the matter can alter your retirement experience and in some cases, cause you to have to go back to work.

Financial Backup

While you may have a pension, 401K, or IRA ready for retirement, having a backup plan is a must. In most cases, you’ll be living on a pretty small budget. Your income is not as significant as it was when you were working and you must adjust to live within those limits. So, when an unexpected expense occurs, how do you pay for it? Here are some considerations:

  • Borrow from loved ones
  • Apply for a short-term installment loan

  • Generate passive income for emergencies
  • Find financial assistance for seniors

Each of these avenues provides you with financial backup should you find yourself in a jam during retirement. Be that as it may, the idea is to create a soundproof plan that will minimize the chances of you getting into financial trouble. Below are some of the expenses you need to budget for.

  1. Medical Expenses – If you plan on relying on Medicare to cover your medical expenses, you should know that it won’t cover everything. You’re going to need to have funds for things like prescription meds, long-term care, dental visits, and eye care. Using one of the above financial backup solutions can ensure that you can get the treatment you need without being under financial duress.
  2. Inflation – The cost of living will continue to go up and if you haven’t properly budgeted for this inflation, it can begin to impact your finances. Be sure that during your planning you account for inflation and create a financial cushion or nest egg from which you can turn to in the event that you don’t have the upfront cash to pay for it.
     
  3. Taxes – No matter how old you get you’re going to be paying taxes. From property taxes to individual income taxes, you will be required to report your income for the year and may be required to pay the state or federal government.
     
  4. Entertainment – You’re going to be home all day long. Chances are you’re going to want to find new hobbies and activities to occupy your time. Whether you want to travel the world, take up golfing, or just have money to go to dinner and a movie, you’re going to need to make sure that you’ve properly budgeted for these costs.
     
  5. Home and Auto – If you own a home or a car, you need to make sure that you have budgeted for hidden expenses such as repair costs. The older your vehicle and home get, the more they will require repairs and servicing. From simple maintenance like a tune-up for your car or gutter cleaning for your roof to major repairs like a new transmission or a new hot water heater, the costs of hidden repairs can add up.

Retirement is meant to be enjoyed. You have worked hard all of your life and deserve the opportunity to be able to enjoy the fruits of your labor. Be that as it may, if you don’t properly plan for retirement, you’ll find yourself dealing with unnecessary financial stress. Having a financial backup plan, and saving for those unexpected expenses will allow you to live your retirement years in peace.

Why Are Millennials Struggling with Retirement Savings?

Most of the older generation is of the mindset that millennials don’t know how to save for retirement (or even care), but that’s not 100% true. Gen Y is actually thinking about retirement planning rather early in life:

  • For adults under the age of 30, the biggest retirement fear is that they will run out of money by the time they retire, and many plan to continue working.
  • More than 80% of millennials believe they cannot rely on Social Security to keep them comfortable in retirement.
  • Most believe their retirement will be self-funded, and over 70% started saving for it at an average age of 22.
  • Millennials are also using modern tools to their advantage, such as mobile apps that help them manage their retirement savings.

However, there’s a flip side as well. For instance, over 60% of millennials believe they need expert guidance, yet only one in three actually consult a professional financial advisor. Over 50% have not calculated how much they will need for retirement, relying on “guesswork” to reach an estimated figure.

Retirement Planning Obstacles for Millennials

 Here are some of the main obstacles that millennials face while planning for retirement:

  • No Savings in IRAs – Individual Retirement Accounts (especially Roth IRAs) offer some heavy-duty tax breaks, but most millennials haven’t started using these accounts to their advantage. 401(k) accounts allow millennials to gain from matching employer contributions, but they also need to park some savings in a Roth IRA for tax-free withdrawals in retirement.
  • Student Loans and Debt – The use of student loans is widespread, especially among the younger generation. When you’re making plans to pay off debt and save for retirement, the process can be rather challenging. For those still paying for their college education, it’s crucial to work with a financial advisor who can help formulate a repayment plan as well as build assets for the future.
  • Job and Income Instability – The recession left behind a host of problems, creating an unstable economy with a tough labor market. Unless they were lucky enough to graduate in a high-paying field, most students take whatever work they can get. With lack of stability and low earnings, retirement savings get pushed aside by simple survival and the struggle to meet basic expenses.
  • Higher Lifestyle Expenses – Students fresh out of college earn less than their older counterparts for at least the first 10-15 years, if they’re lucky enough to find employment at all. At the same time, inflation has been on the rise. This creates a vicious circle for millennials, since it’s hard to put aside funds for tomorrow while struggling to keep a roof over your head today!
  • Lack of Emergency Savings – Even millennials who understand and work toward retirement planning neglect to create an emergency fund. Wonder why “saving for a rainy day” matters when you’ve already saved in a retirement fund? It’s all about protecting those savings from early withdrawal penalties, and avoid running up debt for unexpected expenses.
  • Ineffective or No Budgeting – Millennials are accused of being too focused on the latest gadgets, gizmos and personal items, which is often true. It may seem like a good idea to splurge on something because “YOLO”, but it’s also critical to factor in the long-term impact of any expense on future financial security. A well-planned budget is the only answer.

Millennials and Retirement Planning: The Bottom Line

Most millennials are hoping to retire early (by age 65 or earlier), so they have more time and energy to enjoy the things they’d like to do when there’s no more work pressure. However, without a proper financial strategy, it’s going to be hard for young investors to meet their goals.

Contributing to a company 401(k) and an IRA is a good start, but it’s equally important to consult a financial advisor and work on a smart savings plan for retirement!

Author Bio:

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments.

Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as MoneyForLunch, Biggerpocket, SocialMediaToday, WealthManagement, SeekingAplha, and NuWireInvestor.

Saving for Retirement – 5 Steps to Success

Saving for Retirement – 5 Steps to Success

Retirement should be an important concept to each of us. As soon as possible, we should all be focusing our efforts on saving for retirement. According to the Department of Labor, most individuals spend at least two decades in the retirement phase of their lives. By focusing on a money saving tip here and there, you are sure to achieve success in putting back a little cash for what promises to be some of the best years of your life. Financial security during our retirement years is not something that naturally occurs on its own. You must have a plan and stay committed to the task at hand. In this guide, you will learn 5 simple steps that will make saving for retirement successful.

Start Saving as Early in Life as Possible

One of the best and most productive means of saving for retirement is to ensure that you start doing so as early in life as possible. This is, perhaps, the best money saving tip for individuals that have a desire for future financial security. Saving is a very rewarding habit. Simply start small in your younger years and increase the amount that you save as you grow older. This will allow your investments longer periods of time to grow. Your retirement investments should be a top priority. Simply come up with a plan, set goals, and be persistent in sticking to your plan and achieving your goals. There is power is passing time, especially when it comes to compounding interest!

Max Out That IRA

As of 2014, the maximum amount that you may contribute to an IRA account is $5,500.00, annually. If you are over the age of 50, this amount goes up to $6,500.00. To successfully max out an IRA account as an individual under the age of 50, you would need to place $458.00 a month in the account. If you are over the age of 50, you would need to contribute $542.00 a month into the account. These contributions may be made right up until it is time for you to file your taxes. In making contributions until this time period, you will find that you are able to save money right away on your taxes.

Opt for Your Employer’s Retirement Savings Plan

You should be certain to sign up for any type of retirement savings plan offered by your employer. An example of this type of plan is the ever-popular 401(k) plan. Once you have completed the sign up process, you should then immediately start making as many contributions as possible. You will find that the amount that your employer contributes increases and the amount that you pay in taxes are lowered. As time progresses, you will find that the tax deferrals that you receive and the compound interest associated with the contributions on the account will enhance the amount that you are able to save to put towards your retirement. This is a very popular money saving tip for people that are saving for retirement.

Appropriately Manage Your Risks

When planning for retirement and engaging in the task of saving for retirement, it is important to ensure that you appropriately manage any and all risks associated with the endeavor. You should ensure, as you age, that your exposure to certain types of risks decreases because recovery is harder as you get closer to retirement age. Common examples of risks that should be avoided as you save for retirement include, but are not at all limited to, longevity risk, inflation risk, excess withdrawal risk, health expense risk, long-term care risk, frailty risk, market risk, interest rate risk, liquidity risk, sequence of returns risk, and forced retirement risk.

Keep Your Portfolio Balanced

When planning for retirement and handling a wide array of investments that will assist in saving for retirement, it is important to ensure that you keep your portfolio balanced as your investments experience shifts. The ultimate goal is to ensure that you always have the money that you need for retirement on hand. If you find that your portfolio is not allowing this to occur, you should focus on making the necessary changes.

Conclusion

Retirement is a phase of life that is to be enjoyed and cherished. You have your entire life to prepare for this phase. There will come a time in your life when you choose or must withdraw from your career or your working life, in general. The goal is to create income sources that do not have to be earned through the process of working. It is a time of life when you are considered to be financially independent. By following the money saving tip list in this guide, you will find that you accumulate the savings, the investment income, and/or the necessary pension income that is required to cover your living expenses and enjoy yourself during your retirement. A few simple steps in saving for retirement today could bring many enjoyable tomorrows for you and your loved ones!

saving-for-retirement

Do You Plan to Work in Retirement?

plan to work in retirementWorking in retirement sounds absurd on the surfaceâ”I mean it isn’t really retirement if you have to work, is it?

But there are actually solid reasons to work during your retirement years, at least on a part-time basis. This isn’t about being gloomy on retirement prospects eitherâ”it’s about being prepared for a world where outcomes are uncertain. And even if we can’t know what retirement will look like right now, we can still prepare ourselves to be ready for what ever it might be.

Why you might need to continue working past retirement

There is no shortage of reasons why we may have to work past retirement age. Consider some of these:

1. Statistics and surveys are indicating that most people don’t have enough money saved up to retire

The future of Social Security is highly uncertain, but we can be pretty sure that benefits will be less than what they are now
Traditional pension plans are hard to come by, and even if you do have one few people stay on jobs long enough to make them work the way they’re supposed to.  Job losses are hampering retirement account contributions

2. The financial markets don’t always cooperate with our long term plans

Planning some sort of post-retirement career is one way to develop a back up plan in case any of the above become a negative factor in your overall retirement plans. Increasingly, we have to think of retirement planning as having multiple componentsâ”and income sources.

Types of post-retirement careers

You can be either employed or self-employed in retirement, and which one you choose will be affected by how you want to live in retirement.  Especially nowadays.  Self invested personal pensions and  traditional pension plans are hard to come by!

If you opt for a job, you probably will want to consider a part-time job since it will permit at least semi-retirement. Some of the questions you’ll need answered include:

  • Does the field you want to go into employ senior citizens?
  • Are there part-time opportunities in the field?
  • What is the pay level for part-time work?
  • What are the geographic restrictions (is there work where you want to retire?)
  • Is it a field that matches your skill set?
  • Is it the kind of work you’d like to do?

For many people, the best employment opportunities will be to continue to work in the same field they’re in now, but in a reduced capacity. But again, you’ll need to ask the same question because the job you have now may not suit your future aspirations. Or you may just be tired of it and ready to move on to something completely different.

Self-employment is another route. The advantage here is that it’s easier to work a business around retirement, and that you don’t need anyone to hire you. Both open a lot of possibilities.

Still you have to ask a few questions:

  • Is it a business that you will like working in?
  • Can you make enough money doing it?
  • Will there be any geographic limitations?
  • How much capital will it require to start?
  • Do you have the skills to make it a success?

Self-employment can be attractive since most people dream of doing it at some point, and retirement often provides the opportunity. Also, if you’ve never been self-employed before it can be a new adventure that keeps you going for a lot of years.

Why you may need to plan your post-retirement career now

The job market looks a lot different when you’re in your 60s or 70s. When you’re younger you can consider a job almost anywhere, but as you get older a lot of employers won’t want you. For this reason, you can appreciate why planning a retirement career is something that should be done well in advance.

As you see from the questions in the last section, there are fine points to consider in a retirement career. It will be, most likely, a career change, whether you go into a different field of employment or start your own business. Either will have to be planned for now.

This is especially true with self-employment, since you will probably need to start the business well before retirement that way it will be a ready income stream when you need it.

Also, consider that if you’re making a wholesale changeâ”doing work you’ve never done beforeâ”you will need to do some research, get training or even work a few apprenticeships. That last one is especially good since you could work in the field for a short time and find that you don’t like it. Then, you’ll have to look into something else.

Another factor is personal. Many people work in jobs and careers that don’t really like, and it can be a stretch after doing that for an entire career to let yourself go and think seriously about working in something you really would like to do. Some people know what that is right now, for others it could take years to figure out.

What ever you decide on, you’ll want it to be something you like a lot better than what you’re doing now. After all, even if you can’t fully retire, you still want to enjoy your golden years.

Being ready for what ever happens

Planning a retirement career isn’t about giving up on more traditional retirement. It’s about being ready for what ever happens. We’ve all heard the saying, the best laid plans of men and mice go awryâ, and that can apply to long term financial planning as well.

The Bible tells us as much. In the book of James we read:

Now listen, you who say, Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.❠Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. Instead, you ought to say, If it is the Lord’s will, we will live and do this or that.ââ”James 4:13-15

Retirement isn’t a magical time when all the cares of life disappearâ”the unexpected can happen any time in life. Some of what can force you to work into retirement might include:

  • A stock market crash just before retirement
  • A stock market crash during retirement
  • A job loss that forces you to make early withdrawals from your retirement savings
  • An adult child or family member who needs direct help
  • A series of bad investments (heyâ”nobody’s perfect!)

Planning for the future is about planning for uncertainties; that’s what planning a post-retirement career is all about.

Is a post-retirement career part of your retirement planning? What kind of work to you think will be the best fit?

photo by bravenewtraveler

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