Wise Financial Strategies to Implement After Retiring

You meticulously saved and watched your finances throughout your working years, so you could have a good retirement. But now that you’ve finally reached that dream goal of retiring your hard work isn’t done yet. You still need to keep a close eye on your finances to ensure you don’t overspend and end up short come the later years of retirement.

To make sure your after-working years are the financially-stable, enjoyable time you want them to be, these are the wise financial strategies you need to implement after retiring.

 

Keep A Close Eye on Your Income Streams

Before you know how much can be spent, or if you can afford to take that weekend trip, you need to know how much money you actually have coming in. Most retirees will have two streams of steady, monthly income coming in: social security benefits, and a retirement plan like a 401(k) or (much more rarely) a pension. These two things will form the basis of your income, but is that enough?

For the average senior, these two things alone will not be enough. You will need supplemental income like a personal savings account or additional income streams to support your bills and extra activities.

The first part of being successful in your endeavors is to know where you stand. Know where your steady streams of income are coming from and how much you have set back besides that.

 

Consider Getting Gap Coverage

Most seniors will utilize Medicare Part D for their health insurance. Unfortunately, that may not be enough alone for some individuals. This includes anyone with a preexisting health condition or who takes prescription medications and/or natural supplements on a consistent basis.

Gap insurance is a type of health insurance created specifically to fill in the non-covered areas of Medicare Part D. This can significantly reduce the out-of-pocket costs on prescriptions and other medical expenses.

 

Get Rid of Debt FAST

The ideal situation would be one where you enter retirement having paid off all outstanding debt. This might include your mortgage, car loan payments, credit cards, student loans for yourself or children, etc. Yet not everyone can manage to pay off all their debt during their working years.

If you enter retirement without any outstanding debt you can typically afford to live a comfortable lifestyle on 80% of the income you made during your working years. If you have not, however, this will be hard.

Those who enter retirement with outstanding debt should make it a point to pay it all off as quickly as they can – even if it means they may have to forgo any extra activities for the first year or two of retirement. Doing so will pay off in the long term.

 

Keep Your Savings Growing Interest

The average senior now lives for two to three decades past the point where they retire. This means you need to keep a sizable portion of your savings in your account to continue growing interest. The best way to do this is to only pull out what you will need on a once or twice-yearly basis. That way, the rest will continue building compound interest for the years to come.

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What Millennials Need to Know About Retirement

The millennial generation is in the perfect position to have an amazing retirement. With plenty of years left to save, compound interest can significantly help to boost your own initial investments.

The key, however, is knowing how to save so your returns are maximized. Ready to find out how? Here are a few things millennial savers need to know about retirement.

 

Take Full Advantage of Employer Matching

If your employer offers a 401(k), they will match a certain amount of your own contributions. This is typically a percentage of your salary. Amazon, for example, matches 2 percent.

This means that at $500 a week you should be contributing $10 to your 401(k). Your employer will then match that contribution, so you end up with $20 each week. It may not sound like much, but employer matching is essentially free money.

After working with the same company at that same 2% for just five years, you could accumulate an initial investment of $5,200 in your 401(k). Without employee matching you would only have $2,600. That is a lot of free money you could be missing out on.

 

Consider a Few High-Risk Investments for Your Portfolio

While low to moderate-risk investments are much less volatile than their high-risk counterparts, they also have a lower return. Millennials who are in a good financial situation should consider adding a few high-risk investments to their portfolios.

These high-risk investments carry the potential for a significantly higher profit over the long term, and usually come in the form of stocks. The trade-off is that there is also the possibility of losing your entire initial investment. Even then, however, you could bounce back in the following year.

 

Create a Plan – and Stick to It

Being a little spontaneous when you’re young is okay, but you should have a financial plan in place. There is no need to micromanage everything. Instead, learn the basics of asset allocation and tweak the plan a little once annually.

Millennials also need to figure out how much money they’ll need to have saved by retirement. You can find a ton of free calculators online which will help you figure this number out. Once you have a number, adjust your savings goals and plan to ensure you’ll reach that number in time.

 

Don’t Freak Out at The “Big Number”

When you figure out how much money you need for retirement it can be frightening. That number looks incredibly “big” and many become stressed-out because they think they won’t be able to make it.

Here’s the thing though: your initial investment will be almost nothing if you start saving now. Compound interest will be the majority of your holdings, in fact. For example: a $6K yearly investment over thirty years into an account with a 6% compound return will leave you with $503K. The initial investment is only $180K.

 

Remember a Non-Retirement Savings Account

All your savings should not be tied up into a retirement savings account. That would force you to withdraw from that money in the event of an emergency. Consider matching or going half what you put into retirement for a general savings account. If you save $10 a week in retirement, place $5 or $10 into a non-retirement savings account. This helps keep you (and your retirement) financially secure.

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Does Your Social Security Earnings Record Contain Errors?

Did you know that you should be checking your social security earnings record at least once a year after turning 50? You want to ensure it contains no errors so that it does not affect your benefits once it comes time to begin withdrawing them. Even a single error could have a significant impact on your retirement.

 

What is a Social Security Earnings Record?

This is a record of all the income you’ve earned during your working lifetime. Social security benefits are based off the 35 years during which you earned the most. If by mistake, one of those years was listed as a non-earning year (or a $0 earning year), then that would be included in your benefits calculations. The end result is a smaller benefit check during your retirement years.

 

How Much Smaller?

A single mistake such as a non-earning year when you did, in fact, work, could create a deficit of as much as $100 a month once you begin collecting social security. That $100 a month could be the difference between a comfortable retirement and barely scraping by, or between barely making it and not being able to make it each month without significant savings withdrawals.

 

When to Start Checking

It is never too early to begin checking your social security earnings report, so you could begin keeping track as soon as you start earning wages. If they have not already, however, individuals should begin checking their report for errors at least beginning at the age of 50. This gives plenty of time to correct any issues which may arise before you need to start collecting your benefits.

 

Where to Check

You can check your social security earnings report online by going to www.socialsecurity.gov/myaccount. If you have not already created an account, you will be prompted to do so. If you do have an account, you need only to log in.  

 

Important Information

It is important to note that there is a statute of limitations on how much time can pass before an error is no longer able to be corrected. This timeframe is 3 years, 3 months, and 15 days. There are a few exceptions to the rule, however. Exceptions include purposefully fraudulent entries, mechanical errors, clerical errors, among others.

 

If You Find an Error

If you do find an error on your report, you should notify the Social Security Administration (SSA) as soon as possible. You can do this by submitting a form called the “Request for Correction of Earnings Record.” You will need to provide evidence that proves your wages were earned. This can be done by submitting one or more of the following documentation:

  • Original or employee-issued pay slips (must include your name, social, gross wages, and the period covered)
  • Wage verification from SSA-approved company
  • Oral and/or written statement from the employer
  • W-2 form
  • Tax return

It is also important to respond to any correspondence about the error, should the SSA contact you with any concerns.

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3 Reasons to Start Saving for Retirement in Your 20’s

Not many millennials have even begun thinking about retirement, nonetheless started planning or saving for it. Yet the best time to begin saving for your retirement is well before it occurs – such as in your 20’s.

Ready to find out why to start saving for retirement in your 20’s? Here we discuss just three good reasons.

 

1: Small Payments over A Long Period of Time

When you begin saving for retirement in your 20’s, you have the luxury of saving smaller payments over a longer period versus large payments over a short period of time. If, for example, you start saving at the age of 25, even $5 a week can end up being a substantial amount.

At $5 a week for 40 years, you will have an initial investment (without interest) of $10,400. For $20 a week over 40 years – which is about the amount spent on lunch in two work days – you could end up with an initial investment of $41,600.

If you don’t begin saving until the age of 45, however, the outcome is very different. With only two decades to save, your initial investment is only half as much.  

 

2: Builds Substantially More Interest

The best savings accounts currently are those which build approximately 7 percent compound interest per year. This are typically created specifically for retirement savings. This is, essentially, a lot of free money for just leaving your retirement money in a savings account.

In the first year alone, with a deposit of $5 per week, you’d earn $18.20 in interest. Assuming your savings account doesn’t offer compound interest (in which case the number would be greater), you could have about $3,600 – around $1,000 of which would be in interest – in just ten years. Now, imagine that over the course of four decades – or if you were able to place more than $5 a week into savings.

 

3: Prepared for the Unexpected

Ideally, the perfect retirement age would be between 65 and 70. This would give you plenty of time to save your money until you’d be able to withdraw the full social security amount each month. But sometimes this just isn’t possible. People suffer from health complications that make working impossible, while others are forced into early retirement by their companies.

If this were to happen between the ages of 55 and 65, starting to save early could help you postpone an early withdraw from your social security benefits. Each year that you are able to wait to begin claiming those benefits, the total monthly amount becomes greater.

As you can see, there are many good reasons to begin saving for retirement in your 20’s. With smaller payments over a long period of time you will not stress yourself as much financially during your working years. You will also build substantially more interest over the four or more decades your savings sits, and you can be prepared for the unexpected.

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