Thinking about retirement? Congratulations! Retiring is a major life change, but when done carefully, the transition can be smooth.30
You've worked hard to reach your golden years, so make sure you are able to enjoy them comfortably. Follow these seven money-management tips for retirees from the First Service Wealth Management team.
The First Service Wealth Management program is offered through CUNA Brokerage Services, Inc, a broker/dealer focused on serving credit union members. CUNA Brokerage Services, Inc. is an affiliate of CUNA Mutual Group. For more information about CUNA Brokerage Services, Inc., please visit cunabrokerage.com.
1. Build a Comprehensive Retirement Plan
When it comes to retirement, it doesn’t happen overnight. Retirement planning is an evolving process that should start when you are young. Identifying goals of how and when you want to retire will help you schedule your savings and identify benchmarks that you will need to achieve along the way. As you transition into retirement age, the planning should evolve and become more specific. To craft your plan, you will need:
- A timeline of when you plan to retire
- A budget with anticipated income and expenses
- Expected tax calculations
- Estate planning documents
- Goals written down: What do you want to see, do and experience?
Pro-Tip: When creating a budget to project your income and expenses, be sure to account for cost of living increases over time. Depending on how far you are from retirement, this figure may change over time. It is important to work with a seasoned financial professional to keep your estimates accurate.
2. Review Your Insurance Coverage
Insurance coverage is an essential component of creating a long-term financial plan – especially if you’re planning to retire. It pays to have the policies in place, from paying for unexpected health care to protecting your home. While the kinds of insurance you may require in retirement can change over time, you should have a good understanding of what coverage you will need and how you plan to pay your premiums. Types of insurance to consider for retirement include:
- Medical insurance
- Homeowner or renter’s insurance
- Car insurance
- Umbrella insurance
- Long-term care insurance
- Travel insurance
3. Cut Back on Your Expenses
For most people, retirement will mean a fixed income. As you make your plan, it is common for your expected costs to exceed your anticipated income. If these variables aren’t balancing out in your plan, you may need to start cutting back.
Start by looking over your current budget. If you find that you’re spending money on things today that you can do without, you should reallocate those resources toward paying off debt. You may be able to reduce your monthly expenses significantly by refinancing your mortgage or other big ticket items, like auto loans, allowing you to pay off the debt faster. The more debt you can pay down now, the fewer ongoing expenses you will have when it’s time to retire.
Pro-Tip: Don’t underestimate the potential benefit of consolidating your debt. Consider taking out a low-interest personal loan with a fixed rate. This can help eliminate higher-rate debts so that you'll get out of debt faster.
4. Maximize Your Income
In addition to cutting back on your expenses, you will want to ensure your income and other benefits are in line with your desired retirement lifestyle. Once you are retired, it’s important not to miss out on any possible income sources.
Your social security benefits are determined by a number of factors, some of which you control, such as how much you paid into the system over your career and the age at which you will begin to withdraw. However, other factors are out of your control, such as availability of funds, which is why social security alone is not enough for the modern retirement strategy.
As of 2020, the earliest age you can start to withdraw is 62, but the amount you are able to withdraw each month will likely go up for each additional year you wait, up to age 70. For details on how to calculate your possible social security payments, visit the Social Security Administration's Retirement Benefits page.
Retirement Savings and Investments
Your personal savings, including traditional retirement accounts such as your IRA, will be an important part of your retirement income. When setting up these accounts, consider your risk tolerance, commissions, and other management fees that may apply, and look for ways to optimize your portfolio for retirement income. Remember, the closer you get to retirement, the less risk you should accept in your portfolio.
Passive income is money you generate from your investments or business interests. You don't earn these funds by working a daily job, but there is still some work required on your part. If you've determined that you may outlive your funds or need extra money, consider the following options for generating passive income during retirement.
- Investments: Investments like stocks, bonds, annuities, and mutual funds can generate immediate income. Each has its own set of risks and benefits, but an experienced financial professional can determine which investment opportunities best align with your goals.
- Real Estate: Owning rental real estate is another means of generating continuous passive income, but it may require some effort on the part of the property owner. Regular maintenance and upkeep are usually the responsibility of the owner, as well as repairing damage caused by tenants.
- Entrepreneurship: Starting a small business is another way many retirees generate income. For anyone with a special skill set or talent than can be turned into a profit-earning business, this may be worth some consideration. As with any business, it’s important to be mindful of risk and profit margins, but entrepreneurship may be a way to stay busy and earn passive income.
5. Plan Ahead for Taxes
Taxes are an important part of retirement planning. How and when you withdraw from different accounts, cash in investments, or sell off assets can cut into your annual income. Be sure to include taxes in your plan for retirement income, and work with a financial professional to develop a strategy that will reduce the taxes you owe each year.
As an example, withdrawing from a 401k in a year when your income is lower could reduce the taxes you must pay on that money. Likewise, using things like a health savings account (HSA) or investing in municipal bonds can provide tax-deferred and even tax-exempt ways to save your money so you can make withdrawals as needed during retirement.
6. Create a Strategy to Stretch Your Dollars
Learning to make the most of each dollar often becomes a priority for retirees, since many have to adjust to a fixed income. Our own Michael Alexander, a member of the First Service Wealth Management team, advises retirees think of their income in three buckets:
Bucket #1: Emergency Savings
The Emergency Savings bucket should be enough to pay a retiree’s bills for approximately one year. These are funds that should be readily available in case of an unexpected expense or emergency. While we normally advise members to set aside enough to cover expenses for three to six months while they are working, Alexander recommends increasing your savings upon retirement – especially if you are no longer generating a steady income.
Pro-Tip: Putting your savings into a money market savings account is an effective way to earn dividends without giving up access to your money. At First Service, our money market account has no monthly service charge and allows you to make unlimited deposits and withdrawals any time you need to access your funds.
Bucket #2: Supplemental Income
The Supplemental Income bucket should be used to cover expenses that your social security or pension cannot. This might be money you receive from an investment, such as an annuity, a 401(k) rollover, or mutual fund. A trusted financial professional will be able to help you set this up.
Bucket #3: Discretionary Spending
The Discretionary Spending bucket is what you use to finance the fun parts of your retirement. If you want to travel, for example, you need to create a budget and set that amount aside. Estimate how much discretionary income you’d like for your golden years, and place that amount in a high-interest savings account. Any dividends you earn will be an added bonus!
7. Make Time for what You Love
When it comes to a comfortable retirement, there is more to consider than simple dollars and cents. Spending time with family, friends, and loved ones can help you enjoy these years regardless of your bank account. Some suggestions for remaining happy and healthy during your golden years include:
- Sticking to a routine
- Eating well
- Exercising your body and mind regularly
- Traveling and trying new things
- Visiting with family and friends
- Volunteering in your community
- Donating your time and money
Pro-Tip: When planning for retirement, consider building a complete legacy plan with your trusted financial professional. This will help you create a holistic plan not only for your finances, but also for your life as a whole.
How First Service Can Help
Retirement planning is never a one size fits all solution. The First Service Wealth Management team works directly with members to plan for the changing needs of retirement. From starting your first savings account to looking for retirement-focused investments, our team is ready to help you create a personalized plan. Complete the form below to request a free consultation.