Many people include traveling as part of their retirement plans. After all, it’s a great time to do so since there are usually no work constraints and more free time. If you plan on traveling during retirement, you should start thinking about where you want to go and how long you want your travels to be. For example, do you want to spend a month somewhere or just a week here and there? How often you travel and how long can have a big impact on costs and your finances. These are things that should be considered while saving for retirement so that you have enough in your nest egg to cover the costs. It’s also important to remember that travel costs can quickly spiral out of control. Travel, especially international travel, can cost thousands of dollars per trip. Furthermore, sudden costs can also add hundreds of dollars to your trips and vacations. Therefore, it’s important that you make efforts to keep yourself on a budget and to keep travel costs under control. You can do so by doing research on where you travel and by having a plan. Such research can give you an idea of what other travelers went through and how to avoid added costs and expenses. It can also be tempting while traveling to splurge. You know, an extra fancy dinner or two or spending extra money on souvenirs for friends and families. Just like so many other things, these purchases can really add up over time. That’s not so say you can’t spend when you travel, but do so intelligently. That means having a budget and making it realistic and building that budget into the overall picture of your retirement savings. I encourage you to travel if that’s what you want to do during retirement, but I also encourage you to think about those travel costs as you save for retirement so that you can ensure you have enough saved up.
The term “budgeting” usually gets lumped together with the term “saving” when people talk about finances. For many, budgeting is a key part of saving because it limits your expenditures by putting the money that you spend under a microscope. However, it may be more helpful to look at budgeting as not so much how you save your money, but rather how you spend it. This includes analyzing where you spend it, how you spend it, and when you spend it. Focusing on your spending can give you a good idea as to what expenses are really important as well as where you can tighten up your spending habits. For example, you may find that there are certain expenses that may not seem like much, but really add up over time. You may decide that you can live without such purchases and thus make an effort not to avoid them. I know, it may seem odd to focus on spending when your budgeting. However, it’s also not good to get all wrapped up in saving while budgeting. And of course, you also don’t want to let budgeting dictate your life, so don’t be afraid to live a little from time to time (and within reason!). So, in summary, when it comes to budgeting focus on your “spending” and don’t get too wrapped up in the “saving” aspects of it. Of course, if you need help with budgeting, you should speak with a certified financial planner or wealth manager.
You may not realize it, but insurance can be an important part of building up your wealth. Think about it for a moment. Insurance helps to protect your assets and your health and allows you to avoid having to spend tons of money should anything happen to your assets or health. For example, sudden health emergency–such as something as common as a broken bone–can be quite expensive and really eat into your savings and can be difficult to recover from. However, if you have health insurance, that amount coming out of your pocket is reduced based on your premium and the impact on your finances is lessened. In looking past your health, insuring your assets (i.e. your home and car), can do the same thing. A car accident or a storm that causes damage to your home can be just as expensive as a medical emergency. Now, chances are you are well aware of the importance of insurance and, if you are a responsible adult and consumer, you’ve already insured your property and health. But it’s important to realize–and for me to reiterate–that by having insurance, you are also insuring your wealth. You are taking an important step towards protecting the nest egg and the money you’ve saved by making sure it doesn’t get sucked into an emergency expense. You are making sure that some of the costs of life don’t take away from the hard work you’ve done of saving for your present and future. Of course, if you realize that you don’t have insurance or your insurance is lacking, don’t worry. Take the time to either purchase the insurance you need or look into changing your level of coverage.
Life can be unpredictable. Do you know how you will handle that unpredictability? For example, if you were faced with a sudden, substantial medical bill or your home was damaged in a storm, do you know where the money to pay for those expenses will come from? If you’re financially savvy/smart, you probably have an emergency fund set aside to help with those expenses. However, if you don’t have such money set aside or the costs are more than your emergency fund, you may need to find other financial resources to tap into. While I strongly discourage it and will only suggest it as an absolute last resort, taking an emergency withdrawal from your retirement funds is a potential option. I want to remind you, again, that taking emergency withdrawals from your retirement account is highly discouraged and should only be done under the rarest of circumstances. It’s also important that you at least understand the rules and consequences of taking a hardship withdrawal. First off, you will want to see if your retirement plan even allows hardship withdrawals. Most 401(k)s and IRAs allow for hardship withdrawals, but there may be specific guidelines you will have to follow. You will also need to ensure that the expenses you intend to use the money on qualifies as a “hardship” as defined by the plan rules or custodian. Many plans have a list of such events that automatically qualify (i.e. certain emergency medical procedures, required home improvements, etc.). Be aware that there will be tax consequences to a hardship withdrawal if coming from somewhere that isn’t a Roth IRA. You may even get hit with an early distribution penalty, depending on your age when you make the withdrawal. You will also need to make sure that the withdrawal is only for the amount of the expense and nothing more. Before you make a hardship withdrawal, you need to show that you have no other options as well, which may require opening up your financials to scrutiny. These are the main things you will need to be aware of, but there may be more depending on the retirement plan you want to take money out of and your personal situation. Taking a hardship withdrawal can be a tricky transaction that can open you up to serious penalties if not done correctly. If you are considering a hardship withdrawal, you will want to speak with a certified financial planner both to decide if the move it right for you and also to make sure that you do it correctly should you decide to do it.
Many Americans tend to splurge when they get into retirement. After decades of working and saving, they’re reached the promised land and want to make the most of it. That spending usually comes in the form or vacations and luxury items (A new Mercedes anyone?). While it can be nice to treat yourself to a retirement present, you need to be careful about how often you do so and how much you spend, especially during that first year or two of retirement. As I’ve stated in recent blog posts, those first few years of retirement are crucial to setting the tone for the rest of retirement and can have a huge impact on how long your nest egg lasts. This doesn’t mean you have to be super frugal when you first enter retirement, but rather that you should be smart with your money. For example, you know that you want to take a nice (or prolonged) vacation during the first year of retirement, then make that decision a few years in advance. As part of that decision, save money separately for that trip or cut back on certain expenses to free up some extra money for that trip. Also, try to set a realistic budget for the trip so that you don’t overspend. Remember, chances are that once you get to retirement, you won’t have income to make up for any overspending. However, that doesn’t mean you shouldn’t give up on your retirement dreams either, but rather that you should just be smart about them. Budgeting can be a very helpful in making your dreams a reality while also not breaking the bank. If you need help with getting your retirement expenses in order or want to better organize your nest egg so that you can take that trip-of-a-lifetime, then you should speak with a certified financial planner.
How often do you go to Starbucks? Are you one of those people that gets take out for dinner multiple times a week? Do you ever bring your own lunch to work? These types of expenses may seem like little things–$5 here, $10 there–but they can really add up over time. Over the course of a year, those expenses can add up to $100s or, more likely, over a $1,000 of dollars. That’s a lot of money. Particularly money that could also be put to better use elsewhere, such as going into your retirement account or used to pay down debts (i.e. mortgages or student loans). This may not be a big deal if you are at your max earning capacity, but it may make a huge difference for those just starting out in their careers and who aren’t earning that much. This post is also a nice reminder that you should review your spending habits from time to time to make sure that you aren’t unnecessarily spending money on things you don’t need to spend money on. Maybe you don’t need to stop at Starbucks (or the local coffee shop) every morning or maybe you could start eating dinner at home multiple times a week. Taking the time to find these expenditures and correct your spending habits can free up a lot of money for you. Aside from going through your expenditures line by line, there are also numerous apps that can be used to track expenses by tracking your credit card and debit card expenditures. You can use that information to determine what expenses to cut out or where you may need to cut back. You don’t need to cut out all those little things, but you may want to cut back or be more cognizant as to where and how you spend your money.
You are probably well aware that healthcare is something you will need to plan for in retirement because, unfortunately, as we age, our medical expenses don’t go down. Therefore, it’s important that you have some type of healthcare plan in place when you retire. There are a few ways to go about this. If you are retiring before your spouse, you could always join their plan, which most companies allow. If you are over age 65, you are eligible for Medicare, which many Americans rely on for healthcare coverage in their twilight years. Another option is to purchase health insurance through your state’s Health Insurance Marketplace. Finally, there is also the health savings account (HSA) route, which has become somewhat popular in recent years. If you have an HSA that you’ve been able to grow into a reasonable chunk of change in recent years, then you might include that as part of your medical expenses coverage. Regardless of what you decide to do for health insurance during retirement, you will want to do your research. That means seeing what your options cover, what their costs will be, and whether each one fits what you are looking for regarding medical coverage. You don’t want to pick a plan that’s too pricey or doesn’t cover illnesses/conditions that you may already have or are highly susceptible to. However, you also don’t want to overpay for coverage that may eat a good chunk of your retirement savings unnecessarily. There are a lot of online resources available to help you research and even pick the plan that’s right for you. If you are worried about costs and how they may impact your retirement finances, you should also speak with a certified financial planner, who should be able to give you an idea of your budget or financial thoughts.
If you consider yourself a financially responsible individual, then you probably track your expenses. For some that’s done mentally, while others choose to actually track their expenses either with apps on their phone or by writing them down somewhere. Tracking where you spend your money may seem like a tedious endeavor, but it can have a big and helpful impact on your understanding of your finances and what you may need to do to change your spending habits in the future. First off, tracking your purchases can make you more aware of your purchases and expenses–it can bring them to “life” in a sense. Secondly, purchase tracking can give you a good idea as to what you prioritize and consider to be important. Seeing these priorities can help you to make changes in your purchasing habits that better reflect what is truly important to you or to gain a stronger idea as to what your future budgets may need to be. Finally, tracking your expenses can help you to organize your money, build a budget, and become a more savvy consumer. If you take the time to analyze your purchases, you may find that you could be more efficient with your money. For example, if you find that you purchase coffee at a particular coffeehouse and it costs $2.50, but you can also get a cup of coffee at a local convenience store for $1.00, you may want to get in the habit of getting your coffee from the convenience store (yes, I know they may not taste the same). Furthermore, if you are living on a budget so that you can be efficient with your money or build up your nest egg, purchase tracking is most likely a very important part of that process. Keeping track of the money you spend can be vital in retirement as well, especially if you are living on a fixed income and living off your nest egg. Regardless of your reasons for tracking your expenses–or how you do it–what matters is that you get in the habit and keep up with it.
Is it planning? No. Is it good budgeting skills? Nope. Saving? Bingo! Yes, the most important part of retirement preparation is still saving. Yes, you can have the best financial plan and open multiple retirement accounts, but if you don’t save enough none of that matters. If you’ve been doing research on retirement saving, then you’re probably well aware that many Americans are not saving enough for retirement, especially those of younger generations. Now, there are various reasons why younger Americans are not saving enough, but there is no reason why older generations are not doing so. Saving should be your first priority when it comes to retirement. Your plans in retirement or your plans for your estate should take second fiddle to saving. Yes, it can be hard to save, especially if you have things such as a roof to put over your head or mouths to feed, but that’s where budgeting and discipline come in (along with a good plan for saving). If you want to beef up your retirement saving game or need help finding the motivation to save, then you may want to speak with a certified financial planner. Also, if you have the chance to encourage your children or grandchildren to start saving early for retirement, you should do so.
There’s a really good chance that you’ve had a family member who required long-term care towards the end of their life. You might even be going through such an experience right now with an elderly parent or relative. These experiences can range from hiring in-home care to placing your parents in an assisted living facility. Regardless, seeing others go through it and, if you cover the expenses, having an idea of the costs can leave a mark of you as you plan for your own retirement. It may cause you to think about how you want to age as well as the financial and emotions toll it can place of those who will have to cover the costs of any long-term care you might require. Thus, it’s not uncommon for people to build long-term care plans into their larger retirement plans. Some do this by building up a nest egg that’s large enough to handle any future expenses with little worry about whether any might be left over. Others save enough to cover costs for long-term care insurance. Meanwhile, others may invest in assets that can be sold off in the future to cover potential costs. If you are nearing retirement and haven’t put much thought into long-term care plans and expenses, you should take some time to think about it. Keep in mind that thanks to medicine and science, people are living longer lives today than they did a generation ago and that can mean retirements that last decades. These advances also mean that people with chronic illnesses can live longer lives. However, that longer lifespan comes at a cost as the best medical and elderly care services are not cheap. If you haven’t considered long-term care in retirement, you should spend some time reading up on the topic and how it could impact you and your retirement plans.