With life expectancy steadily climbing over the years, it’s understandable why a majority of baby boomers worry about outliving their retirement savings. All retirement accounts require a life expectancy component to determine exactly how much you need to save to live a comfortable life after your career. However, during the time when boomers planned for their futures, the ages they thought they would live to were much lower than today’s trend. If you feel burdened by your finances and fear your life will surpass the money you’ve saved, we’ve provided ten strategies to help you increase the longevity of your retirement income. Of course, speaking with a financial professional will always be one of your best options.
- Create a Budget
I’ve always believed the best way to stay out of debt, is to make a promise to yourself to never spend more than what you have. By creating a monthly budget, you’re able to visually see how much money you bring in, how much money goes out and ultimately stay in control of your finances. Emergencies can happen when you least expect them, so make sure you include a savings fund in your budget as well as medical and health expenses.
- Invest in Stocks
It may seem scary to put your money into something as risky as a stock. Nevertheless, the potential return on stocks is significantly greater when compared to bonds or mutual funds. That doesn’t mean putting all your eggs in one basket though. It’s smart to have a well-diversified retirement portfolio with a combination of each type of investment. Going along with the increased life expectancy rate, many financial planners recommend you subtract your age from 110 or 120 instead of 100 to get the percentage of stocks you should keep in your retirement portfolio. This is due to the advantage stocks have to provide extra growth for your money. Your financial advisor can help you pick the right investments for you.
- Focus on Your OWN Financial Security
You’ve probably heard of a phrase along the lines of, “You can’t take a loan out for retirement, but your children and grandchildren can take a loan out for their education, car, home, etc.” The core message of this saying is the importance of putting your financial security before your family members. You may feel obligated to help them when they’re in need, but they have a plethora of other options available to them in terms of borrowing money in the form of a loan. Retiree’s, on the other hand, have far fewer options.
- Convert to a Roth IRA
There are significant benefits to converting your traditional IRA and 401(k) balances to a Roth IRA account. A Roth IRA does require you to pay taxes on the current balance, but the positives may outweigh the negative. The main advantage is your ability to take distributions tax-free after you retire. Also, Roth IRA’s don’t have a minimum distribution requirement, so you have the freedom to withdraw how much you want and when. Roth IRA’s also have no effect on your taxable income.
- Steadily Save Money
Saving money is just as important in your retirement as it is when you’re in your 20’s and 30’s. If anything, it may be more vital in retirement because of the additional risk of health complications, which can come with a pretty hefty price tag. Having a ‘rainy day fund’ helps suppress any stress you would have if something unexpected does come along in your life.
- Take out a RMLOC
The reverse mortgage line of credit product is an effective addition to the retirement planning toolbox. The line of credit, when left untouched, can distinctly impact the amount of money available to you in the future. It allows you to leverage the equity you’ve built up in your home and safeguard your finances in retirement.
- Plan for Taxes
One topic many people overlook in retirement is taxes and how they change after you retire. Depending on your forms and sources of income, it’s important to understand all of your tax implications. It may even be valuable to hire a tax professional to look over your retirement plan to make sure you aren’t missing out on the chance to lower your taxes or even save some money.
- Re-Evaluate Your Withdrawal Rate Periodically
Unlike traditional retirement approaches that say you should stick with one withdrawal rate throughout retirement, reassessing your withdrawal rate once a year can be more valuable especially when one of the below scenarios occur:
- The market dips
- You re-allocate your portfolio
- A life event changes your retirement expectations
By choosing a more flexible withdrawal rate strategy, you can also anticipate for inflation and two other unknown factors – life expectancy, and future spending plans. This allows you to pick a rate that matches your lifestyle and gives you the return you need.
- Establish Multiple Sources of Income
If you can’t cut your expenses down any further, the next best solution to generating more income is to create more sources of it. You can consider jumping back into the workforce by working part-time to give you the additional financial flexibility you desire. You can use this time to do something you’ve always wanted to do, such as be a day care assistant, librarian assistant, bookkeeper, or working at your favorite retail store. Whatever you do, make the most out of it!
- Delay Collecting Social Security
Even though you’re technically eligible for social security distributions at 62, you could be doing yourself a disservice and sabotaging the amount of money you can receive overall. If you wait until the age of 70 though, the monthly amount you receive could nearly double! One way to delay social security is to use a reverse mortgage to live on during those years. You can use your proceeds from the loan to live on – or use the money you will be saving by not having a monthly mortgage payment. Though, keep in mind, you are still responsible for paying taxes, insurance, and home maintenance costs.