While most Americans spend a great deal of time thinking about retirement and planning out their investments to make sure they enjoy their golden years, most people fall far short of those goals. There are simply too many distractions early in life, and too many ways that even the best laid plans can take a wrong turn. Even if you did everything right, changes in the economy and the cost of living can leave you with the scary realization that you’ll outlive your savings account. The fact that most traditional pensions are disappearing doesn’t help matters, and it’s often too late to do anything about it when you finally do realize you’re behind the eight ball. But regardless of how bleak it may seem, there is always a silver lining. The sooner you get back in action the better. So here are five tips to help you manage your income in retirement.
You won’t be able to decide on a plan of action until you fully understand the reality of your situation. So start things off on the right foot by performing a detailed cash flow analysis. Most people fall short of their goals because they don’t take the time to understand exactly how much money they need to maintain a comfortable lifestyle during retirement. You can get things rolling by making an easy calculation. If you can save around 80% of your pre-retirement income you’ll be okay. But that doesn’t leave much room for vacations and fun purchases. So take a look at your monthly expenses, and compare that number to the money you reasonably expect to take in each month during retirement. This is the baseline you’ll take action on from here on out.
If you’ve been investing for years, now is the time to review your portfolio and look to bring it back in balance. Your investing goals are different at different periods of your life. When you are young it’s easy to be aggressive, as you have many earning years ahead of you to make up for any loses. But later on in life you’ll probably want something that’s more conservative, offering income you can count on each and every month. Talk to a professional and look for ways to balance caution and risk, so that you can rest easy at night and still make up for some of the gap in your financial requirements.
Even though you are officially retired, you don’t yet have to trigger your social security collection. The longer you can put this off, the better the return you will realize. Social Security examines your estimated lifetime earnings, with a special focus on those three decades when you are at the peak of your earning potential. Even if you aren’t making much of a salary right now, it could be advantageous to let Social Security continue to build up before you collect. You can trigger it for the first time at 62, but waiting until you are 70 or older will lead to a larger check every month.
Given this delay on benefits, you might want to consider downsizing your lifestyle. That doesn’t mean living like a pauper. But perhaps there are some things you can now do without. For instance, perhaps you don’t need to stay in the home where you raised your children. Selling it and moving into a one or two bedroom apartment will save you a ton of money each month, allowing you to enjoy your retirement with less stress and aggravation. You might also want to consider switching from two cars down to one, and examining the vacations you take to see where fat can be trimmed.
Finally, don’t forget how connected your health is to your financial well-being. One of the biggest budget busters for anyone of retirement age are medical bills. Constant trips to the doctor and filled prescriptions can eat up a huge chunk of your monthly expenses, leaving little else for the finer things in life. So watch what you eat, exercise regularly and even take on a trainer if you need some guidance. The sweat you put in now will save you tons of money down the road, and help you avoid hospital stays as well.
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