Bringing Stability to Your Retirement
By Dan Benson, CFP.
If you’re reading this in hopes of bringing stability to your retirement, you probably want a plan you can implement as soon as possible.
Maybe you’ve already stopped working and you’re looking for a bit more confidence that your plan is on track.
Maybe you’re a couple years out from retirement and looking for tweaks you can make to be in the best position possible.
Or maybe you’re a savvy millennial looking even further down the road – good for you! Many of us wish we had time back to make wise choices sooner.
Whatever your situation is, having stability in retirement is an important, worthy goal. Here are some ways you can accomplish it based on the stage you’re in…
Laying a Stable Foundation in Your Working Years
Let’s address those of you the rest of us are a little jealous of: the ones who still have a lot of time on their side. Here are three things you need to do today to bring stability to your retirement in the future:
1. Start investing now.
When it comes to investing for the future, time is your best friend. That’s because your investments – the amount you put in the market plus the interest gained – need time to grow. The longer your money stays in, the more exponential growth you’ll benefit from, and the bigger your nest egg will be down the road.
Watch this clip from our show, Retirement Talk, for a practical example of what this can look like:
The great thing is if you’re in your 20s or 30s reading this article, you’re in the perfect position to take advantage of compound interest. You still have plenty of time to retire with a million dollars or, hopefully, even more! The easiest way to do that is utilizing our next step…
2. Automate your savings.
Whether it’s setting up a payroll deduction to automatically contribute to your company’s 401(k), or having an auto-draft for your investments from your checking account, take out the guesswork by making it involuntary. Not to mention, convenient.
In his book, “The Automatic Millionaire,” bestselling author and money coach, David Bach writes: “You need to set up a system that guarantees you’ll get paid – a system in which you pay yourself first AUTOMATICALLY.”
This is also where you shift your mindset. It’s crucial to view putting money away for the future as paying yourself first. Your future self would like a paycheck, too. It’s your job right now to make sure that happens, and that future you is able to enjoy your lifestyle in retirement.
3. Don’t touch your retirement savings.
Did you know that half of U.S. adults withdraw from their retirement accounts early?1
That’s a dangerous statistic, because those early withdrawals will cost you anywhere from 20-50% due to income tax and penalties. That doesn’t even include all the compound interest you’ll miss out on.
I know it can be tempting – especially in financially tough times – to borrow from your nest egg, but it’s not worth the cost. Borrowing from your retirement savings is one of the worst financial decisions you can make. It’s an unfortunate way to put the stability you’ve been working toward at risk.
So, honor your hard work and savings by leaving your retirement accounts be for the future. There are other ways to come up with the money you need during these years when you’re still able to work!
Preparing for Stability As You Approach Retirement
Here at Beacon Capital Management, we’re always meeting with people just a year or two away from retiring. They’ve realized it’s best time to reevaluate things like tax strategy, legacy planning, and more. Here are three steps you can take in the few years before you leave the work force:
1. Get an income drawdown plan.
In order to create a stable retirement plan, you need to know what your monthly will be. An experienced financial advisor can draw up an income drawdown model for you. This type of chart takes into account your retirement age, projected longevity, and total amount of your investments and nest egg. The model can show you how much money you can expect each month
At Beacon we include this model in our complimentary Financial Plan Checkup.
2. Choose your mortgage strategy.
If you still have a mortgage, is your plan to pay it off before you retire? If not, how long will you have to carry that monthly payment, and how does that impact your overall financial plan?
Many Americans find stability by paying off their mortgage before retirement. But if your current interest rate is low, it might be better for you to throw any extra money in investments rather than at your mortgage. It’s a good idea to run the numbers with your financial advisor to see where you’ll get the most benefit.
3. Make catch-up contributions.
Typically, the IRS limits the amount of money you can contribute each year to your retirement accounts – like your 401(k) or IRA. But catch-up contributions are like a financial boost for those 50 years and older, allowing you to make up for not saving as much when you were younger.
Currently, Americans under 50 can contribute annually:2
- $22,500 for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan
- $6,500 for IRA plans
With catch-up contributions, Americans 50 or older can contribute an additional $1,000 on top of those limits. If you can swing that for several years before you leave the workforce, you can bring extra stability to your retirement.
4. Fund your HSA (Health Savings Account).
Medical costs will typically be the biggest expenses in your golden years, so it’s important to be prepared for the bill. A Health Savings Account is a great place to set aside tax-free dollars earmarked for your healthcare in retirement.
Here at Beacon, we love an HSA for a few reasons, but the primary one is the triple tax advantage.
Everything you contribute to your HSA is tax-deductible, reducing your taxable income. Also, if you turn on the investing piece of your HSA (which you should – remember, the goal is to save this money for retirement healthcare), the growth is tax-free. And when you use these funds for medical expenses, you won’t pay tax on the withdrawals, either. It’s a win-win-win!
5. Put two hours’ worth of your pay toward retirement.
If you’re trying to make up for lost time, bestselling author and money coach, David Bach has a strategy for you: calculate whatever you are paid for working two hours and invest that money in a pretax retirement account. This is from his book, “Start Late, Finish Rich,” which makes our list of best retirement planning books.
Maintaining Stability in Your Retirement
If you’re already in retirement, you might be wondering if you can get a bit more assurance your money will last. It’s not too late to bring stability to your retirement. Here’s what we recommend:
1. Get a Financial Plan Checkup.
The best way to find the peace of mind you’re looking for is to get a second opinion of your financial plan. Here at Beacon, we offer a complimentary Financial Plan Checkup that will show you:
- Potential gaps that may be putting your stability at risk
- A fee analysis, to uncover any hidden or unnecessary fees
- Tax-saving strategies that could save you thousands over the course of your retirement
- A portfolio stress test to see how your income may be affected in a volatile market
These are just a few of the things you’ll uncover with our free Financial Plan Checkup. It’s a wholistic view of your overall plan; a checkup to make sure you’re keeping as much of the money you’ve saved as possible. It’s important to run your portfolio through this as soon as possible. Think about health issues that pop up in your life. It’s better to visit the doctor on a yearly basis rather than wait a decade when everything is going wrong, isn’t it? That’s why we recommend scheduling your free Financial Plan Checkup today to see what’s really going on behind the scenes, so to speak.
2. Find ways to generate extra income.
Now stay with me here! I know you might be thinking, I want a stable retirement, but I quit working for a reason!
Wouldn’t it be nice to have some extra cushion beyond your retirement savings and Social Security benefit? There are plenty of ways for retirees to bring in extra money that you might actually enjoy. Here are some money-making ideas – fun ones, only:
- Renting out an extra room in your house to a college student or tourist
- Tutoring on a subject you’re familiar with or passionate about
- Selling products or crafts on Etsy
- Sewing and alterations
- Consulting and freelancing
- Selling unwanted items on Poshmark, eBay, or Facebook Marketplace
- Hosting local tours in your area
3. Don’t blow your budget.
I don’t want to harp on frugality – after all, you’ve earned the right to spend your money the way you want to – but I’ve seen a few clients over the years take a chunk out of their retirement savings for things like a luxury car, or bailing out a family member. This can pose a problem if those expenditures weren’t considered as part of your original retirement plan.
When you’re on a fixed income it’s important to stay within your monthly spending limits. If a big, unexpected expense comes up, talk to your financial advisor about the best way to make room for it.