• 10 Financial Rules for Retirees

  • by Austin Quinn
financial rules

Planning for retirement can be challenging. How much should you know about investment strategies? What about retirement plans and Social Security? If you’re about to retire or already retired, there are all sorts of steps you can take and knowledge you can gain. This is especially true when asking the most important question of all: how much should you save?

  1. Sooner is Better than Later – Procrastination is a problem that everyone faces at some point. Letting things slide and taking the easy way out might work at first, but at the end of the day the problem remains. When facing retirement, procrastination becomes a much more serious problem. Even if you can only save small sums at first, saving something is much better than saving nothing at all. Don’t let your valuable time slip away.
  2. Do the Math – Planning for retirement may seem like a complex task, but as long as you do the math and prepare for emergencies, the actual process isn’t too complicated. Visit with a financial advisor, calculate your expected returns on investments, and estimate how your life will change once you finally stop working. Speaking of calculations, make sure to calculate a reasonable budget while you’re at it.
  3. Be Careful at the Start – In the first decade of retirement, many seniors tend to spend more freely once they are finally able to pursue new passions and old hobbies alike. However, if you spend too much in the first few years, you run the risk of running out of savings by the time you reach your later years. Be aware that even if you aren’t spending as much on things like transportation, you may begin to see more medical bills and other miscellaneous expenses as you age.
  4. Stick to a Budget – While it may seem obvious, sticking to a budget will give you a better grasp of your current financial standing. Many retirees are living on finite incomes and need to make careful decisions when choosing how to spend their hard-earned savings. After all, if your income is going to be limited to Social Security benefits, investment gains, and other small forms of payment, you’ll need to make the most of the money you’ve already accrued.
  5. Change Your Portfolio as You Age – In your younger years, it makes sense to take greater financial risks and make more volatile investments. However, as you reach retirement age, it’s generally best to stay on the safe side. When stock markets fall, you won’t have as much time to recover as you might have had if you were younger. As a result, many seniors tend to invest more in bonds rather than stocks. However, keep in mind that taking all of your money out of stocks could severely slow the growth of your portfolio.
  6. Build an Emergency Fund – As the saying goes: “proper prior planning prevents poor performance.” By preparing an emergency fund, you’ll be able to handle the unexpected without ruining your budget. If you suddenly lose your job or face a serious illness, an emergency fund could provide enough time to find a new job or prevent disasters like foreclosure. For most people, this fund should be equal to about six months worth of household expenses.
  7. Pay Off High-Interest Debt – As a general rule, credit cards tend to have high interest rates. When you’re trying to save money in the long run, it’s usually best to pay off credit cards and other sources of high-interest debt as early as possible. Regardless of size, paying off this kind of debt will reduce the overall interest you will have to pay.
  8. Consider Life Insurance – When a loved one passes away, the results can be devastating to your emotions and your finances. That’s why getting life insurance is such a good idea – especially for those who are still supporting their family. As a rule of thumb, breadwinners should have at least five times their gross annual salary in life insurance coverage. This will enable most families to adjust to their new financial situation.
  9. Don’t Withdraw Too Much – In most cases, withdrawing more than three or four percent of your portfolio each year may drain your savings. Over time, this “four percent formula” has proven effective in giving retirees a more or less accurate benchmark for their withdrawals. When you get the time, check on your portfolio and see how it’s doing. If it takes a hit, adjust your withdrawals downward. If it exceeds expectations, feel free to enjoy the benefits.
  10. Don’t Follow All Rules All the Time – While this may seem contradictory, it’s good advice for anyone looking to take their financial plans to a higher level. Times change and so do rules of thumb. Just because a concept works well for a decade doesn’t mean it will still work in the future. Since personal finance can often cause confusion, we recommend speaking with a financial advisor before making any significant decisions.