4 Ways to Get the Most out of Your Retirement Budget

As medical technology advances, society becomes safer and health knowledge becomes more mainstream, the life expectancy of humans tends to increase. In 1950, the average lifespan was 68 years. Today, that figure has risen to 78. While people are excited about living longer, quality of life is also an important part of retiring comfortably. Finding ways to stretch your retirement budget will allow you to retire at a normal age without having to sacrifice the hobbies and adventures you enjoy. Here are 4 ways to get the most out of your retirement budget:

1. Create a Financial Strategy

Getting the most out of your retirement starts with knowing the limits of your finances. Start by breaking down your current annual expenses and how those will change as the years progress. For example, each year your expenses will grow roughly 3% due to inflation alone. Although you may pay off a mortgage, or save money on business clothes and transportation, the cost of medicine and treatment may replace those expenses. Mapping out your financial obligations year by year will help you determine your financial readiness and how much flexibility you have.

Once you have a budget, every decision you make can be justified by working within the confines of that budget. For example, you can fund a more luxurious lifestyle by downsizing your home, or moving to a more tax friendly region. If you want to spend a particular year traveling, you can eschew another vice such as eating at restaurants for that specific year. There are plenty of creative ways to do what you want without having to blow up your initial projections by tacking on an additional expense.

2. Diversify Your Portfolio

Just as inflation can eat into your retirement portfolio, earning interest can replenish your coffers. The problem is that many high interest products come with the caveat of increased risk, something older investors are generally less likely to tolerate. However, many financial experts are shifting away from the traditional model and are recommending a more diverse model of risk for their retired customers. As much of your nest egg is not intended to be utilized for decades, there is no reason that a small portion of your funds can’t be invested in higher risk products, if you are willing to ride out the occasional bear market.

3. Determine Your Strategy for Social Security and Pension Payments

The government allows you to take out Social Security benefits starting at age 62. However, doing so will permanently reduce the amount of your benefits. This amounts to a 25 to 30 percent drop in benefits as opposed to waiting until age 66. On the other hand, if you have no other income, or suffer from health issues, it may be wiser to take a reduced check now than wait for a bigger check down the line.

Another decision many workers must consider is whether to take their pension via a lump sum or an annuity payment. As the advantages vary depending on your personal finances, it is best to consult a financial planner about which choice is right for you. Traditional annuities have the advantage of guaranteeing a steady income throughout the life of you and your spouse, whereas a lump sum provides more flexibility and purchasing power.

4. Start Slow

The first five years are the most critical when it comes to retirement. Unfortunately, it is common for many couples to overextend themselves during these years, depleting their savings and compromising their ability to spend in the future. Being conservative early in your retirement has two advantages. First, it allows the bulk of your nest egg to earn interest for another five years. Second, it gives you a realistic portrait of how sustainable your budget is over the breadth of your retirement. From there you can gradually take a more aggressive approach and spend your retirement without worry of outliving it.

Carl Edwards writes for EquityRelease.net covering a wide range of retirement finance topics.

5 Retirement Planning Myths You Should Be Aware Of

Retirement planning is difficult for everyone. It is even more difficult if you don’t plan accordingly or you lack the right information. Unless you are fabulously wealthy, there is no sure-fire plan that works perfectly. However, you can make your retirement planning a lot easier by avoiding these common myths.

You’ll Have Less Expenses

Even if you pay off your home and cars by the time you retire, that doesn’t necessarily mean that you’ll spend less money comparatively speaking. Remember, you’ll also likely be living on less income than you earned while you were working. So, you may have fewer bills, but you are also likely to have less extra money to deal unexpected expenses. Things like home and car repairs are inevitable, so it’s a good idea to have some kind of financial cushion.

You Can Relocate

Many retirees have a dream that they’ll sell their home and relocate to an area where the cost of living is lower and/or the climate is better. You can’t possibly predict what the housing market will be like when you retire. You may get far less for your house than you anticipated or the kind of home you want in your new location may be beyond your means. Another problem is that retirees who move away often stretch their budgets frequently traveling home to see friends and family.

Medicare Will Help

Medicare coverage changes on a yearly basis. It’s inevitable that your health care costs will go up as you age and you can’t count on the fact that Medicare will cover everything. Even now, there are routine things like eye exams that Medicare doesn’t cover. There are also many expensive prescription drugs that Medicare doesn’t pay for as well.

There is No Perfect Number

No matter how good your financial advisor is, there’s no guarantee that he or she will be able to help you predict the exact amount of you money you’ll need to live to a certain age. For one thing, financial advisors can’t predict inflation. Secondly, people often underestimate how much money they actually spend. The best idea is to save as much for retirement as you can possibly afford.

It Can Wait

Many people put off retirement planning because they don’t think they’ll live that long or they feel like they need the money more now than they will later. This is a slippery slope. The earlier you start planning for your retirement, the more you’ll be able to enjoy your golden years. Experts universally agree that the later you wait to start saving for retirement, the more likely it is that you’ll encounter serious financial difficulties when you get older.

The best plan for saving for your retirement is to start early and save as much as you can. There’s no way to predict the future. Even if you have to make modest cutbacks in your budget now, it will be worth it to know that you’ll have some security when you get older and have less earning potential.

 

 

About the Author: Tony Smith is a full-time writer with a great understanding of the need for early retirement planning. He enjoys writing about personal finance, credit repair, and tips for getting bad credit loans for those with poor financial histories.

Best Places To Live In The US – Deciding Before Retirement


At a party last week there started a discussion about the best places to live in the US. It quickly turned to matters of living in a pleasant climate with low cost of living as the group was primarily of the age about to reach retirement.

These friends were vigorously debating the virtues of living in a warm climate mostly to avoid the drudgery are dealing with winter temperatures and precipitation. Places like the Southwest and southern states dominated the conversation throughout.

If you are in the same age category as my friends and myself, there is a good chance you have considered this yourself. Statistics show that as the population ages and baby boomers reach retirement age more and more of them are choosing to move to the southern and southwestern United States.

It’s just too attractive an option when one no longer has the obligation of the job to be drawn to living in a place where the climate is primarily pleasant. Who wants to deal with snow and ice when another sunny day is a possibility?

If the move to a warmer climate is in your future, there are some tips that may help you decide which one is best. First set down in a quiet place with a pad and pen and begin by listing all your priorities. After you have listed them, place them in order of importance. This seems like a rather rudimentary task but one that is vitally important in any decision, especially when you are about to uproot your life and move to another part of the country.

The best places to live for you is not necessarily the best place for someone else but you can determine which place is preferred by using the exercise just described. Of course there are other considerations and you will no doubt want to visit each of the top choices that you come up with but finding your ideal location is not nearly as much of a challenge as it may first appear.

How Big Is Your Pension Fund? Tips for the Future

Do you actively monitor your pension fund? Do you know how your pension plans are performing? Recent surveys suggest that at least two thirds of the population neither understand nor routinely monitor their pension plans. Part of the problem is that pension information is often confusing. But if the recent economic crisis has taught us anything, it’s that we need to pay much closer attention to how we are going to finance our futures.

It’s important to remember that pension plan investments are subject to market volatility and can go down as well as up. In a new US survey of baby boomers, born between 1946 and 1964, sixty percent admitted that in the last three years their homes, investments and retirement plans had all lost significant value and as a result they were planning to delay retirement. A quarter of the respondents said they didn’t see how they would ever be able to afford to retire. That concern is not unique to America, and governments worldwide are looking at making changes to pension legislation. France has already increased the retirement age and the UK is planning to follow suit in 2012. So what does this all mean to you?

In order to be able to grow your pension fund so that you can retire and live comfortably in your later years, you need to have a sound retirement savings strategy, routinely monitor your pension arrangements, use an annuity calculator to check what your income might be at retirement, and adjust your savings strategy accordingly. To secure your future, here are a few tips to consider.

Start early. The time to start saving for retirement is the day you enter the workforce. The beauty of compound interest is that the sooner you start the less you have to pay in to achieve the same retirement income. For example, if you were to invest £2,000 a year starting at age twenty-five and continue for eight years, then never invest another pound; you would actually end up with more money by age sixty-five than someone who invested the same amount of money annually, in the same plan, for thirty-two years, but didn’t start investing until age thirty-four.

Have a plan. As a general rule, you should be investing a percentage of your income equal to half your age. That means a twenty-four year old should be saving eleven percent of their income for retirement. It’s a good idea to consult a retirement planning expert to help you determine an investment strategy that will meet your future needs.

If possible, don’t put all your eggs in one basket. If your retirement savings are in a variety of government, occupational or private pension plans and other tax-free investment schemes, then if one plan or investment is not performing well or collapses, your entire retirement fund is not in jeopardy.

Avoid living beyond your means. Ideally, by the time you reach retirement age you want to be debt free. If you want to retire free of financial worries, make it a habit to live below your means. If you can afford a new car every three years, make it last for five or six years instead. Whatever you think you can afford to spend on big ticket items, spend less, and sock that money away in your retirement funds and investments.

And above all else, you should always know how big your pension fund is at any given time. Ensure your future by actively monitoring your retirement savings and regularly check a pension calculator to see what you need to invest to meet your own aspirations.