Most of us spend our whole working lives looking forward to retirement. However, retiring will not lead to the great life you dreamed of if you aren’t financially prepared. Remember these crucial money lessons that retirees often wish they had known earlier.
1. Create a Realistic Budget
Look at your savings, investments, and the money that will still be coming in. Compare this to your current monthly expenses, travel ideas, and anything you have planned for retirement. Start doing this a couple of years before you retire and update it as needed as your retirement date approaches, as both personal and market-wide economic situations are always changing.
2. Pay Off Debt Before You Retire
Any debt you need to pay back after you retire will come out of your savings and retirement budget, especially if you have any high-interest credit cards or outstanding payments. These will only lower your income, cutting into the funds you could use elsewhere.
3. Have an Emergency Fund
While having an emergency fund is important for everyone, it is essential for retirees. When money is no longer coming in as regularly, you need to be prepared for any unexpected expenses. A report by Fidelity Investments states that the average couple will spend more than $300,000 in medical expenses in retirement.
4. Feed Your 401(k)
One of the most common regrets I’ve heard from retirees is that they wish they’d invested more in their 401(k). Most people don’t care to contribute when retirement seems so far away. To help motivate you, most employers match your contributions and deduct them from your paycheck automatically, and your taxable income may be reduced.
5. Do Not Borrow from Your 401(k)
People may need to borrow from their 401(k) at certain points in their lives. This may not seem like a big deal at the time, but it’s important to know that the amount you didn’t pay back did not gain interest. Also, there are often restrictions on contributions until your loan is paid off.
6. Invest
Having a mixed portfolio of investments is crucial to your retirement. Your 401(k), which has a compound interest rate, is great on its own. However, it’s worth looking into stocks, bonds, and real estate when you have the funds to do so, giving you the chance to diversify.
7. Research Your Dreams
Most people know where they want to move or travel once they retire. Maybe you have a specific property in mind, but how much is the cost of living where it’s located? Have you included a budget for meals, activities, and transportation in that dream? Be sure to research and be flexible as you learn new information.
8. You May Work Again
You may end up working again, and that isn’t a bad thing! Some people go back to work because they realize they can’t afford retirement. Others learn that they don’t love retirement and need something productive to do. Think about what skills you have that could turn into an enjoyable part-time job, and be open to returning to work.
9. Be Realistic About Your Goals
Setting goals as you prepare for retirement is crucial for your planning process. Set savings goals, plan your retirement budget, and anticipate your lifestyle. The sooner you start, the more quickly you will hit these milestones.
10. Take Care of Your Health
Most group health insurance plans end when your career with your employer does, but that doesn’t mean you should stop being mindful of your health. Be sure to take advantage of annual checkups, screenings, and dental visits. Taking the time to care for yourself and your body will save you money in the future.
11. Take Stock of Your Assets (And Debts)
By now, you’ve learned that you should have a clear picture of your finances when you retire. Consider every loan you’ve taken out and those that you’ve co-signed. To find any stray investments, be sure to check with any employers and banks you have had—you’d be surprised what people find.
12. Work With a Financial Planner
Hiring a financial planner to set you up for retirement is a great way to make sure your boxes are all checked. A planner can help with your budget, investments, and estate planning. Be sure to research your options or ask for referrals.
13. Know Your Options and Conversions
Between a 401(k), traditional investments, and IRAs, it’s hard to know where to start. Even so, converting one account to another may be beneficial. By converting your 401(k) or other investments into an IRA, you may be able to have tax-free income in your retirement.
14. Have Uncomfortable Conversations
Simply put, nobody likes to talk about death. Factoring money into the picture only makes it harder, but you shouldn’t shy away. Have those hard conversations, and have a plan in place for your family for when you’re no longer around. Most importantly, be sure to speak to your loved ones about any hidden debt.
15. Understand Social Security
Many Americans look to Social Security benefits to help contribute to their retirement. There are different benefit tiers available, depending on the age at which you start collecting Social Security. For example, if you wait until age 70 to retire, your benefits will increase.