Your retirement should be the golden years of your life. You worked hard during your career years, and you’ve probably dreamed of relaxing and indulging in hobbies like traveling that you were unable to pursue while you worked. Now, you want to be able to live out your retirement with the peace of mind of knowing that you have enough money in the bank so you don’t have to worry about financing the dream.
Revise Your Household Budget
Once you retire your budget changes drastically, both on the income and on the expense side of the ledger. For many people, retirement means living on more modest means. You begin drawing from investments and possibly a pension, IRA or annuity. You want to make sure your monthly income covers all of your expenses and leaves you enough cushion to carry you over into the next month, with funds available for emergencies. So you need to revise your spending as well. Since you won’t be commuting anymore your car expenses should decline (be sure to notify your insurance company about the decrease in miles driven, which should lower your premium), and you won’t be needing business attire anymore so you can cut your clothing budget but you may also want to cut back on other expenses you no longer want or need, such as cable or satellite TV movie packages, your home landline, or other services you may only use occasionally. Be sure your new budget also accounts for any increases such as medical care that may increase as you age.
Revisit Your Portfolio
When you retire you should revisit your portfolio. You will probably want to cut back on “growth” stocks and focus more on income. You might also consider dropping stocks that have under-performed for several years, and consider investing in more conservative options like money market accounts or bonds. These investment choices could provide you with payments to supplement your retirement income. You might also consider investing in an annuity that will provide you with a guaranteed income for life.
There are a variety of different types of annuities so be sure you do your homework before taking the leap because once you are committed you may not be able to change your mind. By “doing your homework”, I don’t mean talking to an annuity salesman. They all tell your their product is the best but you need a good understanding of how annuities work before talking to a salesman. You might consider reading a book like How To Not Get Ripped Off when Buying an Annuity. In it Certified Annuity Specialist Alessandra Derniat says, “An annuity is a financial product often used by people saving for their retirement or for creating an income stream during their retirement. But do you know enough about annuities to feel good about selecting the right one for your retirement?” In the book she covers 4 steps on how to quickly understand and evaluate any annuity you may come across.
Another highly recommended book is the ubiquitous Annuities For Dummies.
Decide When to Begin Drawing Social Security
It can be very tempting to begin drawing Social Security the moment you turn 62. However, drawing early reduces the amount of money you get each month. So there is an incentive to wait to begin drawing Social Security. If you have the means to hold off, it may pay to not start collecting until you turn 65 or even 70. By waiting, you will get a bigger check each month from this program. But if you are sick or have a family history of shorter lifespans it may be wiser to take it early. The Social Security Administration has tools like their benefits estimator to help you decide when is the best time for you to start. If you log in their tools will tell you exactly how much you can expect to receive at various ages and at what age you will break even. Since they have access to your personal data this is based on your actual contributions and so it can provide better information than other estimating tools.
According to data compiled by the Social Security Administration:
- A man reaching age 65 today can expect to live, on average, until age 84.3.
- A woman turning age 65 today can expect to live, on average, until age 86.6.
And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.
They even have a “Life Expectancy Calculator” to help you decide (based on actuarial tables not personal lifestyle or family history).
If you choose to begin collecting Social Security at age 62 you will receive 25% less a month than if you wait until “full retirement age” which varies based on when you were born. If however you wait until age 70 to begin collecting, your benefits will be increased by 32%. These are only example ages, you do not have to choose these exact ages, you can pick any month after you turn 62 and your benefits will be prorated accordingly.
Calculating “Break-even”
If your full retirement age is 67 and you wait until age 70 you will have foregone 3 years of SS income but once you start receiving payments they will be roughly 1/3rd higher. So in order to recover the 3 years of lost income it will take you a little over 9 years. So if you live beyond 79 you will come out ahead. So the “average” man who lives to 84.3 will benefit by waiting and the “average” woman will benefit even more.
Consider Retirement Living Services
Your family home holds a lot of memories. Most retirement professionals recommend that you not consider retirement until your home is fully paid off. This reduces your cost of living although it still requires maintenance, taxes and insurance. For this reason many people downsize at retirement in favor of retirement living services or a smaller space.
These days there are companies specializing in retirement living communities that have multiple locations and services including senior apartments, independent living, assisted living and memory care. One such place is Sunshine Retirement Living, where you could enjoy a number of inclusive amenities for a single price each month. Along with perks like meals and entertainment, you also could have access to necessary services like medical attention in case an emergency happens to you or your spouse. You may think that getting all those services would be very expensive but it might be more affordable than you’d think. If you’d like to compare the cost of an all-inclusive deal like this to your current living expenses you can use their Cost-Calculator.
Retirement should be the pinnacle experience of your life. You have years ahead of you to take it easy, relax, and be proud of a life well lived.
