Retirement can be a daunting prospect for some. After years of working and scrimping and saving, the end of your career can feel like a fresh start and an unprecedented burden, depending on the size of your savings account.
Your hard work may have been different from a sound investment strategy–or at the very least, the stock market has had its ups and downs. The value of your savings can be reduced to less than you expected. You didn’t get around to paying off your mortgage. You might even have retirement income needs that still need to be met.
You may be tempted to give up and declare bankruptcy. Or you can approach this worrying situation logically. After all, you made the necessary preparations over time, and things still seem to be working out in other aspects of your personal life, like your job or relationships.
How to Optimize Your Benefits
1. Know how much you will spend
First, determine whether Social Security and other retirement income needs are met. If they are not, making changes at some point will be necessary.
Here is where the planning by your employer can save you money. If you have high medical expenses, for example, Social Security and Medicare may offer to cover 80% of your costs (as opposed to “Medigap,” which covers only a portion).
Minimum benefits are available for many retirees under age 65 (it may be preferable to work longer than delaying retirement until full retirement age). The most important consideration for those who plan early is that Social Security benefits generally increase yearly as the number of insured workers ages.
Again, your employer can help. If you are in a high-cost area where the cost of living is high, they may offer to match your retirement savings or have some retirement plan (similar to a 401(k) plan).
2. Pay off debts and investments
The best approach is to take care of the most important things first. An excellent place to start is with your debts, starting with all sources of credit except for home equity loans, which yield lower interest rates.
Looking at existing investment accounts that provide income is best. Consider the potential return on these accounts, including stock investments and interest-bearing savings. If the account is a brokerage account, look at your investment options before making an investment decision.
If you can find some way to pay off current debts with money from these accounts, your liquidity will increase while paying off old debts. The debt-to-income ratio is usually considered too high if it exceeds 38%.
The best way of investing money is to minimize risk and maximize returns–and that goal can be achieved in any number of ways (as long as the investment strategy doesn’t violate the best interests of your beneficiaries). Consider buying an annuity, which is insurance against outliving your savings. It can be paid for in different ways:
Monthly payments.
A lump sum (these have been common in the past but have become rarer).
A combination of both.
The rates vary depending on the rate of return, how long you expect to live, and how much you can invest.
3. Consider Social Security
The most important consideration when considering Social Security is whether you will qualify based on lifetime earnings and your age at retirement (there is also a “government pension offset” that can affect retirees who receive either Veterans’ or federal civil service pensions).
Some investment strategies can overcome your financial situation, but in many cases, you should gather as much information as possible before making any decisions. It will help you understand the critical concept of inflation: buying a product today means it will be worth less in the future.
Social Security can be part of a retirement strategy, even if your retirement income needs are unmet. Suppose you have saved enough during your working years. In that case, it is essential to consider Social Security benefits, other expenses, and expected income needs (if any) for the remainder of your life. If a strategy successfully saves in the lower-interest accounts, Social Security will be the last thing you must worry about.
4. Reduce costs
There are many ways to reduce costs of future expenses. Here are a few ways in which you can make your retirement more comfortable:
Consider setting aside some money each month for savings (you should also set aside enough to replace all income that your investments could otherwise provide).
Consider taking advantage of employer-sponsored retirement benefits (such as a 401(k) or pension plan). If that’s not possible because you work outside the United States, consider whether there may be opportunities at an international company.
Consider reducing the premium on life insurance, especially if you have no dependents.
5. Consider your beneficiaries
It is also essential to consider what will happen to your assets (life insurance, savings, etc.) after you are gone (or in case of disability). Stay flexible about a beneficiary–which can be changed by naming a different one at some later point.
You can also choose to provide for a specific goal (such as donating to a charity) in case of your death. You might also want to designate a “change of beneficiary form” that you can fill out when you make your will, allowing another person (or several) to handle this task later.
A Personal Note
While there are many ways to invest and reduce expenses in the long run, the most important thing is to take care of yourself now. Consider your health, diet, and lifestyle–and if you have any concerns about any part of your life (like medical care), you should address them before they have a chance to become serious.
A healthy diet consists primarily of fresh foods that are less processed and lower in fat–and more importantly, a healthy diet will make you more likely to exercise. Exercise can improve your health and reduce the chance of needing an expensive trip (or stay) at the hospital. It also helps you get used to physical activity–which is an essential part of financial Security regarding retirement.
The most important key to financial planning is knowledge. You must know what your goals are, what the risks are, and how you plan to reduce those risks. It would help if you took advantage of every resource you have (including this book). It’s also important to understand that there’s no one-size-fits-all approach: every strategy will have an upside and a downside. For example, while “buy and hold” tends to be a good choice for investing in the long run, there is a chance that you may lose money if you invest at the wrong time.
You can start planning your retirement years. Investing will allow you to use compounding interest, making reaching financial goals more manageable. If you wait too long, however, the costs of achieving those goals may be too high–especially regarding medical care.
As you know from reading this post, earlier planning can be a good thing–but you should wait to think of retirement. Take the time now to review your investments and ensure you know what is necessary to make the best investment decisions possible.
As you do this, remember to address your health’s most critical issue. It’s vital to pay attention to things like diet and exercise.
Investing in the stock market requires a certain amount of risk. While investing with an advisor can reduce that risk, you must know that no strategy or investment method will work for every situation.
