When to retire exists as a key factor in avoiding going broke once you get to this coveted life stage. There are many factors that influence the money you’ll have available to you during these last decades; however, beginning to plan now exists as the most important step to ensure that you’ll always have the income you want during your retirement. Although you won’t be able to plan for everything, you can responsibly plan for several key factors including inflation, low investment gains, and tax increases.
Downsize Your Life
Many retirees plan to travel; and if even you don’t plan on traveling, you should still really evaluate your home against what your current and future needs will be. Keeping up with a home larger than you need will eventually become physically and emotionally exhausting. Why not consider selling it and placing the profits into your nest egg? Moving to a smaller home will also most likely reduce your property taxes, utility bills, and potentially homeowner’s dues as well. And don’t stop with your home. Evaluate everything: cars, clothes, jewelry, furniture, knick-knacks, and even book collections. You won’t be able to take these things with you, but you can sell them, and use the cash to create an enjoyable retirement. Peace of mind exists as an additional benefit to downsizing your home and the things within it—less things to clean, organize, and generally maintain.
Become a Savvy Spender
A host of programs exist to help “senior” citizens. Take advantage of senior citizen discounts on everything from meals, travel, and shopping. If you’re considering taking up a new hobby or looking to expand your horizons, check out the nearest university or community college. Many higher learning institutions offer discounted rates or free classes for retirees. The popularity of steeply discounted group couponing businesses such as Groupon and Living Social are also great resources to enjoy local meals and events at half or more of their usual price. And don’t forget about coupons—most grocery stores will double manufacture’s coupons. Subscribing to a Sunday paper and clipping its weekly coupons can easily save you $20.00 or more on your weekly grocery bill. Becoming a savvy spender in all aspects of your life can make the choice of when to retire an easy one.
Delay Taking Benefits
Whether you delay taking your Social Security benefits or delay dipping into your Individual Retirement Accounts, try to hold off as long as possible. It’s generally more beneficial to you to wait and enjoy a larger benefit than to apply early and receive a smaller one. The longer you wait to receive these monies, the longer these monies will last you. No one has a magic ball that can tell you when to retire; and since you can’t predict the future, waiting to begin these benefits can help you avoid going broke while in retirement.
Consider a Part-Time Position
If you have a passion, why not turn it into a profit? Just because you’re retired, it doesn’t mean you can’t make a bit of money doing what you love. Love animals? Consider dog walking or pet sitting when it suits you. Great with kids? Consider tutoring in a subject you love. Enjoy writing? Freelance when the mood hits. Obtaining a part-time position in a field you enjoy not only keeps your mind and body active, but helps you continue contributing to your financial resources. You could consider earmarking the money earned for travel or for unexpected expenses. Either way, a part-time position is a win-win situation.
Purchase an Income Annuity
If you have the funds available, then purchasing an income annuity can help you answer the issue of when to retire. Income annuities exist as a guaranteed fixed income source for the duration of your life. Many of these annuities also offer an additional inflation protection. It is best to shop around before buying an income annuity—and always read the fine print. Some insurance companies charge much higher fees than others.
Unfortunately, no one has invented a fool-proof formula to guarantee that your retirement will commence without a hitch. However, many strategies exist to help you avoid going broke after retirement. The question of when to retire is equally important as how you plan to retire. A good retirement plan should not only involve your saving strategies, but your spending strategies as well. Take the time to do the research; figure out if selling your home or purchasing an income annuity would give you a comfortable boost before you commit to either. And when in doubt, seek the advice of a financial or retirement specialist.
Have you looked at your current or projected fixed income and wondered “How can I retire on this and still enjoy myself?” If so, you’re not alone. Maintaining the lifestyle you’ve become accustomed to may be difficult to maintain on a fixed income—but not impossible. If you’re willing to put in the work, you can make your retirement work for you. So what can you do today? Making several important changes during this period of your life can increase your retirement savings. Here are four great tips to increase your retirement savings for people over 65.
Evaluate Your Financial Stability
If your portfolio took a rather large hit, or you found yourself victim to a round of layoffs, then be honest about your financial stability. If you’re 65 and eligible to retire, now might not be the best time. Staying at your job for another five years allows you to continue contributing to your private savings as well as enjoy the healthcare benefits provided by your employer. It also allows you to pay down any existing debts. And just because you delay your retirement doesn’t mean you have to delay the travel and activities you plan to enjoy in retirement—use your vacation days and enjoy those weekends!
Budget Well
If you’ve asked yourself “How can I retire on what I’ve saved so far?”, the answer may be that you can’t…at least not without some serious budgeting. The transition from your current income to a fixed income can be a difficult one. The retirement you envisioned for yourself may not be the retirement that realistically exists before you. However, in order to bridge the gap between the two, you can start to wisely budget your money. Don’t underestimate the savings that coupons, senior discounts, and companies like Groupon and Living Social offer. To see if your retirement plan is a viable one, try to live three months or more on your projected fixed income before you take the plunge. If you can’t do it while you’re still working, then you may need to readjust your expectations, strategy, and spending habits.
Delay Taking Social Security
By postponing your application for Social Security Benefits, you’ll be increasing the amount of payment you’ll receive. Generally, it’s a better strategy to wait and enjoy larger payments than begin with smaller ones. Some financial experts recommend taking benefits as soon as you are eligible on the belief that you may be able to make more money if you control the money. However, if you lack the expertise to do this or feel the economy will fail to return the gains you need, waiting to receive benefits may be your best bet. If you have enough money in both savings and Individual Retirement Accounts, then it would be a wise decision to delaying your Social Security benefits.
Consider Your Home’s Worth
With the housing market finally rebounding, your home may exist as a wonderful addition to your retirement nest egg. If you have more space than you need, downsizing may be a great avenue to increase your retirement savings. In addition to the money raised from the sale of your home, your smaller property will most likely have smaller property taxes and smaller utility bills as well. If moving doesn’t appeal to you and you’re still looking to answer the question “How can I retire now?”, then perhaps a reverse mortgage would suit your needs.
Your decision on when to retire should never be based solely on your age. A host of other factors such as your financial stability and social supports should also play a role. The honest truth about retirement planning is this: you can never save too much money. If at age 65 you’re still wondering “How can I retire on what I’ve saved”, then good! It’s better to be over-prepared than under-prepared; you’ll never know what the future holds. By constantly evaluating your financial stability, budgeting money well, delaying Social Security benefits, and using your home as part of your investment strategy you’re on your way to a great retirement.
If you’ve asked yourself “How can I retire with what I’ve got?”, here’s the answer: keep working. Retiring later offers individuals several great benefits that will make retirement both more enjoyable and worry-free. Whether you postpone your retirement by three years or ten years, the longer you wait to apply for social security or withdraw funds from an IRA or other investment vehicle, the better off you’ll be. Let’s take a look at the main benefits of delaying your retirement.
Longer Healthcare Coverage
If you elect to delay your retirement, a large chunk of your healthcare costs will continue to be provided by your employer. We’ve all heard the stories of seniors crossing the borders to Canada or Mexico to purchase cheaper drugs. Medical tourism is exponentially increasing on a global scale because quality healthcare is cheaper in many other countries. By continuing to work, you reduce your healthcare costs—and make no mistake—these costs account for a huge portion of your retirement capital, especially in your final years of life. Though co-pays and premiums can vary greatly from employer to employer, this coverage is often better than the premiums retirees find themselves paying. In addition, your employer’s plan may also offer add-on benefits including critical illness care and/or long-term care coverage which may beneficial if you continue working.
Increased Physical and Mental Abilities
Studies indicate the remaining at work can help an individual remain physically, emotionally, and mentally sharp. Continuing to report to work challenges the brain to remain active through problem solving and creative thinking. Workplace social interactions, particularly if you enjoy your coworkers can play an important role in emotional well-being. Finally, retiring later can challenging the body to remain physically fit—as long as you opt to take the stairs instead of the elevator. Many individuals also believe that their profession offers opportunities of fulfillment that would be hard to achieve without working. If you’ve wondered to yourself “How can I retire and remain engaged in my life?”, then perhaps retiring later is a better option for you.
Increased Social Security Benefits
If you’re planning on collecting Social Security, then you’re most likely already aware that the longer you wait to claim your benefits, the more benefits you’ll receive. Unless you absolutely need to collect the benefits as soon as possible, it’s a better strategy to retire later and then apply for Social Security. With ever increasing healthcare costs as well as inflation, you’ll want the larger payments later rather than the smaller payments sooner. If you’ve looked at your private savings and wondered “How can I retire on this and live to be 100?”, then waiting to collect Social Security is a good option.
Increased Private Savings
If you continue to work, you’ll be able to increase your nest egg two ways: you’ll be increasing the amount of funds available for your retirement and you’ll be resisting the urge to withdraw monies early and incur any fees or penalties from the IRS. Increasing your private retirement savings is also a good idea especially if your portfolio took a hit in recent years. At this stage, you most likely own your home or condo as well. Although the housing market has not seen a complete rebound, it is slowly recovering. If selling your home exists as part of your nest egg, waiting a little longer may help you see larger profits from the sale.
Deciding when to retire doesn’t need to be an arduous decision. Financial experts recommend that retiring later offers a number of significant benefits that ultimately make your retirement more stable and enjoyable. If during the retirement numbers-crunching process you’ve ever thought “How can I retire on this?”, then maybe it’s time to consider postponing your retirement by a few years. People are living well into their 90s and 100s. Staying physically active, eating well, and remaining socially engaged means that you’ll still be enjoying your retirement as a centenarian—you won’t miss waiting five or so years to get there.
If you plan on outliving your money in retirement, then deciding when to retire exists as a very important determining factor. No one wants to suddenly find themselves cooking Ramen noodles on a weekly basis or downsizing from a beloved home to a tiny apartment. In order to build a nest egg worthy of retirement, not only must you begin early, but you must build that nest egg from multiple sources. Delaying your retirement age is only one source; other nest egg-building strategies worthy of consideration include managing invested money to return gains, purchasing an income annuity, and accounting for inflation. Careful planning, financial discipline, and reasonable expectations all exist as the foundations to enjoying a retirement free from money woes. Let’s take a look at five tips to how to outlive your funds during your retirement.
When to Retire
Deciding when to retire exists as one of the most important decisions you have to make. For example, both Traditional and Roth IRAs allow an individual to begin withdrawing money penalty-free after the age of 59.5. However, if you delay removing money and continue investing it and receiving gains, the money continues to grow and increase the funds available to you during your retirement. Likewise, the longer you delay receiving your Social Security benefits, the larger those benefits will be when you do apply to receive them. Delaying your retirement by just a few years can make all the difference in terms of monetary returns.
Managing Investments
Another big decision that will affect your ability to outlive your retirement funds revolves around your investments. Are you capable of managing these investments on your own for the return you need, or is it in your financial interests to hire a professional? In addition, with the funds you have available, what return rates do you need to achieve the retirement you want? Are you maxing out your contributions in order to make your investments work their hardest for you? And finally, what is your back up plan in case the market crashes and your investments take a significant hit? Taking the time now to answer these questions and develop an action plan will help you determine when to retire as well as how to retire comfortably.
Purchasing an Income Annuity
You already know how the insurance industry works. Everyone purchases insurance for a product, such as a home. Those who experience damage receive payouts; those who never experience damage live in the knowledge that if they did, they could afford to cover it. Although income annuities can be expensive and exact high fees, they also provide a guaranteed income source for life that is not subject to market fluctuations. Many annuities also offer inflation protection, which further ensures the purchasers will not outlive their retirement funds.
Accounting for Inflation
In the attempt to determine when to retire, you absolutely must account for inflation. Failing to do so will not only drastically reducing your purchasing power over time, but will most likely ensure that you will not outlive your retirement funds. Experts recommend calculating inflation based on 3%. However, calculating inflation at 4 or 5% better prepares a retiree to outlive his or her available cash. And if your inflation estimates turn out to be higher than anticipated, all the better! You’ll be able to plan an extra trip, enjoy many more fabulous meals out, and treat the grandkids to some awesome holiday presents.
You’ve certainly heard the old saying “Anything worth doing is worth doing well.” A truer phrase couldn’t exist describing retirement. No one can divine the future; you can’t know how well your investments will do, or whether an unforeseen life event will necessitate your withdrawing retirement funds early. However, what you can do is plan well. Get all your Benjamin Franklins organized and working their hardest for you. Work on developing a comprehensive plan and stick to it. Once you’ve laid the ground work, knowing when to retire becomes a bit easier. And eventually if you can delay your retirement age, enjoy moderate investment gains, purchase an income annuity, and correctly account for inflation, then you just may be able to outlive your money.
Your retirement plan needs to account for how your IRA contributions will affect your taxes. Different tax structures exist for Roth IRAs and Traditional IRAs. If your retirement strategy involves one or both of these saving tools, then you need to be aware when the Internal Revenue Services expects its taxes. It’s also wise to consider the penalties that exist for withdrawing money early as well as how withdrawals may affect your taxable income. Knowledge is power; and the more knowledge you posses in regards to your retirement income, the more likely you’ll be able to pinpoint when to retire most comfortably.
Traditional IRA Contributions
A Traditional IRA is set up to allow individuals to save money while deferring taxes. This means that the money deposited and the growth of that money over time enjoys a tax-deferred status until it is removed. Traditional IRAs require account holders to begin removing a minimum amount of money around the age of 70. As soon as the money is removed from the account, it is considered income and will be taxed as such. The total amount of tax collected depends upon several factors including total income and marital status. If your retirement plan indicates that your total income level will decrease in several decades, then this account may be ideal for you.
Roth IRA Contributions
A Roth IRA is another type of individual retirement account; however where any individual can open a Traditional IRA, individuals who open a Roth IRA must meet certain income eligibility standards. For example, a married couple who files jointly must make $173,000 or less in order to contribute. In regards to retirement, the gains earned in a Roth IRA are never taxed. Since the IRS collects income tax on the earned money an individual deposits prior to the deposit, they do not collect any tax when the money is withdrawn later—nor do they collect any taxes on gains that money has returned through investment. This type of retirement account is ideal for individuals who anticipate paying a higher tax rate during their retirement than they currently pay.
IRA Benefits
Whether you open a Traditional or Roth IRA, both retirement accounts offer significant tax benefits. All comprehensive retirement plans should include one or both of these types of retirement-saving vehicles. However, it is important to note that if you decide to open both accounts the maximum deposit, $5,500 for 2013 applies to both accounts, meaning that if you own both, you’ll have to split the $5,500 between them. While a Traditional IRA allows you to defer taxes, a Roth IRA allows you to withdraw money tax-free. In addition, both IRAs allow account holders to withdraw up to $10,000 to put towards a first-time home buyer’s purchase of a home as long as several guidelines are met, including having established the account at least five years prior to the withdraw.
Penalty-Free Early Withdrawals
Typically, withdrawing money from an IRA before your 59.5th year will incur a penalty of 10% of the withdrawn amount. However, several exceptions to this penalty exist, and can positively benefit the account holder in specific situations. For example, an individual may withdraw funds without penalty for qualified educational expenses such as post-secondary education or for unreimbursed medical expenses that exceed 7.5% of an individual’s adjusted gross income. The IRS’s guidelines are strict regarding early withdraws, so meeting with a tax or retirement professional may be in order.
When to retire exists as a difficult question to answer. However, understanding how individual retirement investments work, as well as how the IRS collects taxes on each are both important answers to know in understanding how much money you’ll have available to you. A well-organized retirement plan should include opening an individual retirement account. However which one you choose to open depends on several factors including your current income level and projected future income tax rate. The earlier you begin saving for retirement in a Traditional or Roth IRA, the more money you’ll have available to you later. The most important question you need to answer is this: Would you prefer to pay taxes on the money now or later? Once you’ve answered this question, you’ll know with IRA is right for you.
If you’re wondering how to retire, then it may be time to consider opening a Roth IRA. Both traditional and Roth IRAs are wonderful vehicles to save for retirement; however, the small difference between them can make a huge difference in your retirement planning. At its most simple, the Roth is an individual retirement account that exists as an excellent part of a comprehensive retirement plan. At its most complex, it is an investment vehicle with several important restrictions involving income levels and withdrawal rules.
Tax Benefits
The main tax benefit to a Roth IRA is that money distributed in retirement is tax-free (as long as you follow the guidelines). After the account has been open for five years, and you’ve reached age 59.5, you’re eligible to withdraw funds from your account, without penalty. So, once you pay taxes on the money upfront and manage it in the Roth, any gains you make over time will be tax-free. This investment strategy is most effective for individuals who expect their tax rate to be higher in retirement than their current taxable income rate.
Additional Benefits
After maintaining a Roth IRA for five years, the owner may remove up to $10,000 of earnings, penalty-free to put towards a first-time homebuyer purchase. Ideally, an individual would open a Roth IRA as early as possible in order to accumulate enough money to remove it to help pay for a home. If you’re wondering how to retire with less debt, such as debt related to a home mortgage payment, a Roth IRA offers a wonderful opportunity to decrease the amount of a home loan. However, to take advantage of this additional benefit, you’ll need to plan ahead.
Withdrawing Funds
An account owner may begin taking distributions at age 59.5, as long as he or she made the initial contribution five years prior to withdrawing funds. In addition, where traditional IRAs require an individual to begin withdrawing funds at the age of 70.5, Roth IRAs do not require the account holder to withdraw any funds during his or her lifetime. If you’ve planned how to retire with a bit of panache and you don’t need to touch this money, it will continue to grow and accumulate gains before being willed to a family member or friend. This regulation makes Roth IRAs an excellent way to transfer wealth.
Contribution Limits
It’s important to note that contribution limits may be changed by the IRS from year to year. The limits discussed here apply to 2012. As long as your Roth IRA was opened by December 31, 2012, you may make contributions until the tax filing deadline in April of 2013 and have those contributions count towards your total for the 2012 year. Eligible income for Roth IRA investment includes any monies considered as compensation for work you completed. This includes money received in the forms of wages, salaries, and tips. Money received from other sources such as interest earned on investments, or income from rental properties, are not considered eligible. Currently, a married couple making $173,000 or less may contribute up to $5,000. A single individual making $110,000 or less may also contribute up to $5,000. Individuals who are 50 or older may contribute an additional $1,000 annually.
If you are considering opening up a Roth IRA, it is important to make sure that your total income falls into the eligibility requirements. The IRS bases their eligible income levels on your modified adjusted gross income. If your total income exceeds the acceptable limits, than you should consider a traditional IRA. It’s important to note that income levels vary between married couples filing jointly, married couples filing separately, and single individuals. In short, the Roth IRA exists as an integral part to your retirement plan; if you meet the eligibility requirements, you should definitely consider opening one. The question of when to retire may become easier with a well-managed Roth IRA; in addition, the question of how to retire is one step closer to being answered!
Your plan for retirement should address where you intend on spending your final decades. If you’ve decided to leave your current residence, one of several choices available to you includes moving into a retirement community. However before you sign on the dotted line there are several important aspects to consider in determining if a particular retirement community is for you. Let’s take a look at five key questions you should considering asking.
What is the average resident’s age?
Though in polite company it’s rude to inquire about someone’s age, it’s an important question to ask when planning for retirement.Many communities now accept members as young as 50; however this does not mean that the majority of members will be this age.The median age of members can greatly impact the type of activities and events offered throughout the complex.If more of the members are 75+, the retirement community may offer more bingo nights than it offers hiking excursions.If the administration declines to answer this question directly, evaluate the posted recreational activities; if you see more bridge groups than biking trips, it might not be the place for you.
Am I looking for platonic or romantic relationships?
If you’re single, a retirement community may not be the best place to find a life partner.First, the age of the residents may curtail your dating pool.Second, many retirement community residents enjoy established routines and may not be looking for change.In fact, experts agree that it’s easier to find a romantic relationship when you maintain your own home and continue to pursue your own interests.If you’re single and looking for platonic relationships, a retirement community may be an ideal environment.Several retirement communities are even theme-based, focusing on the arts or other areas of common interest.
Will I stay active here?
Research supports that individuals lead healthier and happier lives when their bodies and minds remain engaged.Your plan for retirement should include a variety of physical and mental activities to help you stay young.The retirement community can only offer so much; however, if it is located near a community college, university, cultural center, senior center, or park then it may have a great deal to offer.Many higher learning institutions offer seniors the chance to audit or enroll in classes at discounted rates.Because of their larger nature, retirement communities are often built on less expensive land plots, located further from desirable activities.When considering different communities, it may be worthwhile to review more expensive options that are better located in terms of access to activities to maintain an active lifestyle.
What is the guest policy?
Did you ever see the movie In Her Shoes?After a big fight with her sister, Cameron Diaz’s character shows up to her grandmother’s retirement community and essential moves in.Many retirement communities have policies in place to specifically avoid this situation.If you have grandchildren and enjoy spending time with them, it’s a good idea to read the fine print or ask this question directly.Though some communities may offer playgrounds for visitors, they may discourage those same visitors from spending the night.
What does my monthly payment include?
This may be the most important question to ask.You will most likely plan for retirement based on a fixed income, and it is important to know what specifically this income is buying within the community.For example, will your monthly homeowner dues cover all events offered throughout the community, or only specific ones?Is cleaning service included, or is this an optional add-on?It’s also wise to ask about any fees or other dues that may occur occasionally throughout the year.
When to retire exists in a different timeframe for everyone. However, everyone must decide on where they’d prefer to retire. Your plan for retirement should take into account your financial resources, lifestyle choices, and preferred location. Retirement communities have come a long way in the past few decades. From organized outdoor adventures trips to Wii bowling leagues, retirement communities now offer a wide range of activities. Finding the right community is just like finding the right home: take a few tours and talk to the neighbors—you’ll now when you’ve found a good match.
If you’re ready to plan for retirement, then you’re ready to tackle one of the big questions: where should I live in retirement? Change can always be difficult, and choosing to move can be a hard decision. There are many factors to consider when answering this question. For example, should you move for your health? Should you move to a less expensive area? Should you move to a location that will offer assistance? Should you move away or stay close to family and friends? Once you’ve decided when to retire, it’s time to rank the importance of each of these factors, and begin tackling where you should enjoy your golden years.
Abroad
If you’re the type of person that embraces change, then retiring abroad may be an excellent option. This may be the perfect opportunity to learn a new language or really, truly, embrace your inner wanderlust. Many countries offer excellent health care, significantly lower income and property taxes, and wonderful cultural opportunities. If your plan for retirement requires stretching your dollar, then moving beyond the United States can make this happen. Countries which enjoy thriving expat communities include Panama, Costa Rica, Thailand, and New Zealand. In fact, Panama City has earned a top spot on International Living’s Global Retirement Index for several years running. It’s a good idea to take several trips to your potential retirement country before committing. Seek out the expat communities and get a sense for whether or not you’d truly be a good match.
Highly Recommend States
The AARP recently posted MoneyRates.com’s rankings of the ten best states for retirees. If your plan for retirement involves reducing your costs while choosing somewhere with excellent weather, then relocating to one of these states should exist as a serious consideration. States were examined against criteria including crime rates, life expectancy, taxes, cost of living, and job opportunities. It should be noted that some states, such as Hawaii (which topped the list) have higher living costs than others; however factors such as crime rates, longevity, and weather weighed more heavily than monetary considerations.
Low-Cost States
Are you planning for retirement on limited income? Then moving to a low-tax state may be your best option. U.S. News & World Report recently published “10 Great Low-Tax Places to Retire”, which examined retirement locations based on state and local tax rates. Although no one can change the amount of federal taxes they pay, state and local taxes can vary greatly depending upon the city. This report examines sales and excise taxes, property taxes, and income taxes. If you’re willing to move to make your retirement income go further, than consider moving to Billings, Montana; Manchester, New Hampshire; or Nashville, Tennessee. For a full list of tax-haven cities, click here.
Retirement Community
If you’re ready to downsize, than a retirement community may be a viable option for you. Modern retirement communities are often vibrant complexes organizing a variety of activities ranging from golf to kayaking. Many planned communities are often located near shopping complexes as well as restaurants. Different communities offer various amenities that draw retirees as well: on-site medical care, travel planning, transportation services, and cleaning services are just a few examples. However, many communities also have restrictions including resident age limits and guest limits. For example, grandchildren may not be allowed to stay overnight or over the weekend. Another factor to consider is whether or not you want to be surrounded by people exactly like you; are you ready to give up the diversity within your current neighborhood or condo building?
If you’ve already planned when to retire, then your next move is to plan where to retire. Planning for retirement is a complex and multi-phase endeavor that requires dedication and attention to detail. Taking the time to sit down and really assess what you want over the next few decades is a big step, and one that shouldn’t be taken lightly. If you’ve always wanted to travel, then perhaps moving abroad where moving between countries is easier would be a great option. However, if you’ll be retiring on a limited income, then perhaps moving to a state offering low-tax options is a better choice. Whatever your decision, just be sure to weigh all factors that are important to your situation.
If you’re wondering how to retire on less, know this: it is possible. Despite what the advertising industry would have everyone believe, bigger is not always better. With careful planning and a few life changes, you can retire on less money without sacrificing an enjoyable or memorable retirement. Whether you’re planning on retiring with less by choice or by unforeseen circumstance as a job loss, consider these seven strategies to help you make your retirement everything you hoped it would be.
Think Outside the Box
Have you considered becoming an expat?There are many safe and interesting places you could retire around the world where your money would stretch much, much further.Both Latin American countries such as Costa Rica, Ecuador, and Bolivia and Asian countries such as Thailand and Malaysia and are enjoying thriving expat communities.With cheaper accommodations and excellent medical care, retiring outside the United States should be a real option to consider.
Downsize
If you’re faced with less money for your retirement, then consider downsizing some of your larger expenses such as houses and cars.Moving from a larger home to a smaller home or condo will mostly likely provide you with money to increase your nest egg from the sale.In addition, a smaller home will result in smaller utility bills and property taxes.And although you may love the car you currently own, it may be time to trade it in for one that is more affordable.A smaller monthly car payment frees up cash for other purchases.
Move
It’s a fact that some areas are much lower-cost than others.If you currently live in a high-cost area, consider moving to a new location. Before moving, research property tax rates, sales tax rates, and income tax rates. Did you know that twenty-seven states do not tax Social Security benefits?The money you save from not paying taxes could be a significant amount during your retirement.If you’re wondering how to retire on less, then take some time to seriously consider relocating to a lower-cost state.
Readjust Your Budget
Perhaps in your fifties you envisioned your retirement as several month-long trips abroad and weekly theatre outings.However, you may need to adjust these expectations.So, how to retire on less?Simple: spend less.Instead of eating out often, cook some fabulous meals at home.Instead of taking month-long trips abroad, plan three-week trips annually.Really look at your budget and prioritize your expenses.
Pay Off Debts
Another key strategy on how to retire with less involves paying off debts.Whether your debts include mortgages, credit cards, car loans, or educational loans, working to pay them off before retirement is an excellent strategy.Not only will you be debt-free, but the monthly money you put toward interest will suddenly be yours again.
Wait
This seems like simple advice, but the longer you wait to retire, the higher Social Security benefit you’ll receive.Delaying your retirement by just a few years can make a significant difference in your retirement income.If your other investments fell short, or you withdrew funds early and had to pay a penalty, then consider remaining in the workforce a bit longer.
Find Part-Time Employment
If you’re ready to retire, but see a hole between your saving and your spending, then consider working part-time.Your new part-time job should be something you enjoy rather than something that simply contributes to a bank account.Love gardening? Apply to work at a local nursery.Love dogs? Apply to be a dog walker—and enjoy the added bonus of getting some exercise.
Determining when to retire can be a tricky calculation; however, you can absolutely retire on less and still enjoy it. Careful planning and financial discipline exist as the two core components to make a thrifty retirement possible. If you’re planning on how to retire with less money, the first thing you need to do is develop a plan of attack. The earlier you begin researching your options, the easier your planning process will be—it’s never too early to begin readjusting your budget or paying off your debts. Starting earlier rather than later will allow you to increase your retirement capital.
Here’s a surefire way to become a multi-millionaire: invent a simple, easy-to-follow five-step guide on how to plan retirement. If someone could actually invent such a foolproof strategy then Americans would be in a much better place. Unfortunately, retirement planning is inherently full of risks; you simply can’t know what the future will hold. However, if you start early, acquire a working knowledge of the top risks, and develop a strategy to deal with them, then your golden years are much more likely to be filled with relaxation rather than stress. Although you won’t be able to plan for every possible issue that could arise in your retirement, you can address the top three risks. Planning now will save you a few terrifying headaches later. Let’s take a look at how you can mitigate your risks and really make your money work for you.
Risk 1: Unknown Healthcare Costs
Here’s the rub: the longer you live, the more money you need to cover your health care expenses. Due to better diets and advances in medical care, humans are living significantly longer lives. However, these advances in medical care can be costly, and the overall cost of medical care continues to rise. Therefore, the longer you live, the more you pay for exponentially increasing health care. In addition to rising medical costs, programs such as Medicare and Medicaid are experiencing budgetary cuts, meaning that retirees may be expected to handle more of their own medical costs. Want to know how to plan retirement in regards to healthcare? Consider setting aside a specific amount of your retirement for medical expenses; investing in long-term care insurance is also a good idea—and the earlier you purchase this insurance, the lower annual premiums will be.
Risk 2: Underestimating Your Longevity
No formula exists to tell you when to retire. As mentioned in Risk 1, humans are living longer lives. Let’s say you plan to live to the ripe old age of 100, but you actually live to be 110. Many studies report that retirees spend the most amount of money on healthcare during the last years of life; if you live beyond the years you planned for, suddenly you’re faced with incredible expenses and limited resources. Add inflation to the mix, and the final years of your life may look bleak indeed. Avoid this risk by planning to live forever—well, maybe not forever, but plan to live beyond what is possible. Planning this far in advance ensures that you’ll have enough income and won’t have to rely merely on Social Security benefits.
Risk 3: Failing to Account for Inflation
Want to know how to plan retirement while avoiding a major mistake? Then create a retirement plan that accounts for inflation. It’s a fact that inflation will reduce your purchasing power in the future; to avoid this fact, you need to increase your purchasing power with thoughtful and efficient planning. Although no one can accurately predict what the actual inflation rate will be at any given time in the future, planning when to retire based on different inflation rate models ensures that you won’t be caught off guard. The average inflation rate typically hovers between 3-3.5%; when considering inflation rates, plan with a rate of 5%. Doing so ensures that you’re prepared for whatever the future holds—and if it holds an inflation rate of only 3%, then you’ll be even better prepared. Another way to strengthen your retirement goals is to consider investing in inflation-fighting securities such as stock mutual funds and/or treasury inflation-protected securities. These types of investments hold less risk, which can be desirable in your later years.
No perfect formula exists regarding how to plan retirement; however, you can develop a comprehensive plan that addresses the common risks you’ll face in your golden years. Beginning to invest early and intelligently ensures that you’ll have enough income in your 80s, 90s, and 100s to enjoy these years rather then merely surviving them. When preparing your retirement plan, be sure to consider unknown healthcare costs; this will most likely be your largest expense over time. And don’t underestimate your longevity! Plan as though you will break the Guinness Book of World Records for the oldest human at the time of your demise. Finally, remember to take inflation into account when crunching the numbers. Keeping these three risks in mind will make enjoying your retirement much, much easier.
