Maximizing your golden years from lifestyle to investments, pensions to medical insurance
As retirees, we may relish a lifestyle that frees us from many of our past responsibilities. But financial health isn’t one of them.
Managing money is actually more important when we’ve reached retirement age. And there’s more to maintaining a healthy financial existence than sitting on dependable stocks, overseeing our daily balances, and steering clear of scams that target seniors. Whether through forgetting about them or just not feeling empowered to change, many retirees make significant financial mistakes that affect their future.
But amending these mistakes is entirely within your reach. Here are some of the errors you might be making with your money, and action plans you can take to fix them.
Drawing from or applying for Social Security too early
The prospect of retirement always forces the question of what sources we’ll use to keep us happy and healthy. Social Security is one of those. It’s a benefit you’re entitled to draw from as early as age 62—but is that a good idea?
Your level of Social Security benefits is very specifically calculated according to the year and month of your birth. The moment you start drawing from Social Security, your monthly benefit amount is set for life. The longer you wait to receive it, the more you’ll get as a monthly payment. Drawing on it the minute you’re eligible could result in cash flow restrictions when you need money the most.
Of course, your financial needs can change in a hurry, and waiting too long could cause some unforeseen economic hardship. The key is to take a rational look at your current situation, future plans, and likely longevity. Should your circumstances be favorable, delay getting your Social Security benefits until the monthly payments are high enough.
Spending too much too soon
Anytime we consider ourselves “free agents” from past responsibilities, we tend to be more lackadaisical about watching our bank balances. We spoil our grandchildren, we splurge on comforts, we overspend on items or trips that take too much from us too soon.
Ohio financial planner Greg DuPont says, “We need to look at how you want to live your life, and make sure that the funds support you. It’s an art, not a science.” While your vision for retirement may include a long list of things you want to do but never had the chance, making sure you have enough of a nest egg to support you is crucial.
Take a sober look at what you have before you spend it. Attaining contentment is important, as is generosity towards family, but staying secure for the long haul may mean finding more cost-free ways to get them both.
Cashing out pensions too early
Just like Social Security benefits, taking an early pension reduces the amount you’ll receive each month in the future. But unlike Social Security, pension plans are generally administered by the business you work for—and they may allow you to cash out well before you’re 62 years old.
Many pension funds also allow you to choose between monthly or lump-sum payments. While getting all the cash at once may make you feel temporarily well-off, it may not be as lucrative over a long span of years than if it was broken down into smaller payment chunks.
As with Social Security, take a realistic look at your retirement finances to decide how your pension payment schedule can be maximized for as long as possible. Also, since pensions are handled differently from company to company, make sure you understand the conditions and policies of your own pension fund before you take anything out.
We’re not here to tell you how to run your life, of course. But we do encourage you to consider the reality of aging: simply that it’s not always advisable to continue living exactly as you did as a younger adult. Part of that reality may include where you live.
Many retirement-age adults may own their homes completely after finishing their 15 or 30 years of mortgage payments. But even when those monthly dues are over with, there will still be expenses connected to those homes like property taxes and utilities. Downsizing into a smaller space doesn’t just give you less physical matter to oversee when you’re older; it could potentially free up a lot of your usual expenses.
Especially if we’ve raised a family in a big home, we carry a lot of sentimental attachment to the places we’ve inhabited. But to be truly happy as retirees, we may be better off having less. Consider what you’ll really need when you’re older, how much you can do with and without—and change your living space accordingly.
Not accounting for medical expenses
Even for those of us with the healthiest lifestyles, medical events will happen. As we get older, they will happen more frequently. We may avoid planning for them when we’re younger because doing so reminds us of mortality. But until our GPS gadgets finally figure out where that Fountain of Youth is, we have to account for medical expenditures in advanced ages.
This could be as simple as setting aside a stupid per month. It also involves taking a realistic look at our overall condition, as well as those of our family histories, and just making sure we have sufficient resources in case of emergencies. Making sure we have the right medical insurance that balances our care needs with our assets at hand is a responsibility we can face in a positive light.
Not accounting for inflation
One fact of economic reality that hasn’t changed is that everything will change. And when it does, it’ll probably be more expensive. Inflation is one constant that consistently happens over the long curve. Even if there are occasional market corrections or temporary deflation, prices for everyday goods and services have always increased decade over decade. But not accounting for the inevitability of inflation is one of the most common mistakes we make when planning our post-retirement finances.
Based on even a casual survey of economic history, it’s generally safe to assume that inflation will grow at an annual average rate of 3 to 4 percent. Maximizing investments and interest rates to return a percentage higher than that—even just a little—could maintain a good share of our current purchasing power as retirees. But above all else, when plotting a post-retirement financial plan, make sure inflation is a factor.
Misplaying the stock market
When we discuss making mistakes with one’s stock portfolio, we’re not just talking about reckless speculation and over-spending (though we are). We’re also talking about underplaying it. While a bedrock of dependable, consistently growing, even unsexy stocks is always helpful, it’s also important to move funds that aren’t doing much more than sitting there.
Even though we don’t suggest playing a reckless raider, it’s just as important to diversify your investment sources to expand your sources of revenue. With e-trading and other technology, it’s a lot easier to research and manage your portfolio than it’s ever been. Keep an eye out for opportunities that make sense, and that have more than a “quick-buck” feel to them.
We all have legacies to protect, whether they be our families, life’s work, and accomplishments. Treating our money as one of those legacies is a great way to approach how we change some of these common errors.