Retirement is a time to enjoy life and relax. But for some seniors, retirement isn’t all they expected it to be. Many retirees find that their savings run out before they can fully enjoy the benefits of not working anymore.
One common reason retirees run out of money is their expenses increase after retirement. Specifically, inflation makes everything more expensive, medical bills go up, and taxes on investment income take a bigger bite out of your nest egg than when you were working.
Fortunately, there are ways seniors can ensure their savings last as long as they do. Check them out here.
Own A House
The best part of owning a house is the equity that comes with it. If you have enough money to put down on a home purchase and pay off your mortgage every month, then over time (usually 30 years), you’ll build equity in your home that can be used as an asset for retirement planning purposes.
By staying in your house until you’re ready to downsize, you can save money each month on rent or mortgage payments, which could otherwise be going toward retirement savings. Plus, you can sell it for more than you paid for it or rent it out and make income from your investment. Either way, the profit you’ll get allows you to buy another property (if so desired) or invest the proceeds elsewhere.
In contrast, renting is expensive and doesn’t help people build equity and wealth. The amount of money that goes into paying rent every month doesn’t go toward buying or building assets for retirement. Instead, it goes toward covering the cost of living in someone else’s home.
Don’t Touch Retirement Savings for Non-Essentials
One of the most common mistakes of retirees is using their retirement savings to cover non-essential expenses, like travel and entertainment. It’s too easy to drain your savings account when you’re not careful about spending your money.
Withdrawing money from their retirement funds without a plan for how it’ll be used is another mistake most seniors make. As much as possible, don’t use funds from a 401(k) or IRA when paying off debt like credit cards or student loans unless necessary.
Avoid tactics like “cashing out” before age 59½.” Otherwise, penalties and income tax may also apply depending on what type of account holds those assets. Always consult a professional who can help you create a budget and set up an emergency fund that includes some cash from your retirement accounts.
That way, if there’s ever an unexpected expense, you’ll have access to immediate cash instead of having to wait for months until your next paycheck arrives.
Take Advantage of Tax Breaks while They’re Available
Some tax breaks are available for seniors that aren’t available to younger people. If you haven’t maxed out on these benefits, take advantage of them before they disappear. You might also want to consider taking advantage of tax-efficient retirement investing methods.
One example of it is an individual retirement account (IRA). It can be used in conjunction with a 401k, but it can also stand on its own. If your retirement plan includes an IRA, make the most of it by investing in a tax-efficient way and protecting yourself from any tax liability that may come after you die. Ask your financial advisor how to maximize your contributions and minimize taxes on withdrawals over time.
Start A Business
Many seniors are worried about the economy, but they shouldn’t be. If you know what you’re doing and have a little bit of money to invest in your business, then there’s no reason why you can’t make a profit.
One of the easiest ways for seniors to raise capital for their startup ventures is by selling off their assets, such as stocks and bonds. If they don’t have these, they usually take out loans from financial institutions.
While many would think borrowing money can be risky after retirement, it’s not always the case. Several credit products are tailored to retirees’ needs and financial capabilities. Plus, they usually have simple approval, disburse funds faster, and even have lower interest rates!
Live Within Your Means
If you’re living on a fixed income, it’s essential to understand that your income isn’t unlimited. You can’t spend more than you earn or borrow money from family members without expecting something in return. If you can’t pay your bills and expenses each month, it’s time for serious budgeting and prioritizing what’s most important to you.
For starters, use 70-80% of your current monthly income to estimate what’ll be required when you stop working full-time. It’s an easy rule of thumb to determine how much money is enough for retirement. For example, if your current monthly income is $6,000 per month (before taxes), then $4,500 could be considered sufficient for a retired lifestyle.
Seniors should be aware of the possibility of outliving their retirement savings and take steps to avoid it. In the end, it’s all about taking control of your finances. Many may take some time to get used to this new way of thinking, but it’ll surely set seniors up with greater financial security later down the road.