Government safety net concerns have picked up, there’s brewing geopolitical and macro headwinds everywhere one looks, and with stocks at all-time highs, some are concerned we’ll see a deterioration of the nest eggs so many retirees have put aside to live off of for the rest of their lives.
Well, that’s a pessimistic perspective. Of course, on the vast majority of years (around 80% of the time), stocks trend higher. For those looking to retire, owning growth assets or those underpinned by solid cash flows has been proven to be the way to grow one’s wealth and retire comfortably.
The problem, of course, is that costs for certain goods consumed by seniors continues to increase at a fast pace. Healthcare costs, food and living expenses are three buckets that none of us can really pull back from. We need to eat, heal up, and have a roof over our heads. It’s as simple as that.
So, for baby boomers looking to retire as comfortably as possible, here are three of the best tips I’ve come across from other personal finance experts on the subject as a way to do so.
Get Ruthless When It Comes to Spending
Elderly couple making a budget for retirement
Spending within one’s means is perhaps the most widely-touted cliche in the world of personal finance. It’s said so often that many may simply disregard the power this advice has, particularly for those who will soon be (or already are) living on a fixed income.
Those who are looking to retire, collect social security checks, and sip cocktails on a cruise ship will almost certainly have to rely on outside capital to do so. Simply paying one’s bills (be they property taxes for those with paid off houses, food, or occasional trips to the hospital) adds up. Those are the sorts of basics that social security can be relied upon for.
But for those looking to go and see the world, travel, and do all the things one wanted to do “when there’s time,” putting a budget together and understanding what one cruise a year will mean is important.
Even for those who don’t plan on living extravagantly and are happy hanging out close to the ranch, it doesn’t really matter. Essential expenses need to be covered first, and often, social security checks won’t cut it. Knowing what one needs to have saved in order to withdraw the recommended 4%-5% of one’s nest egg each year is essential.
Thus, being ruthless about spending, and rooting out things that don’t bring happiness, is a key pillar of advice I intend to follow when the time comes.
Optimize Savings and Investments
Glass jar filled with coins with the word “emergency” on white tape
I’ve heard so many horror stories of folks across all age groups that put capital into their 401(k) accounts or a host of other savings/retirement accounts, only to leave the cash in said accounts as cash.
There’s no bigger flaw, particularly for young investors, in leaving uninvested capital sitting in accounts. For those who have their capital invested, picking and choosing not only the right asset classes, but the right assets within a particular group, is key to providing the sort of portfolio stability and long-term returns so many are after.
For baby boomers who are able to do so and are still working, putting additional capital to work in 401(k) plans and other retirement accounts is possible thanks to catch up contributions for those aged 50 and older. Paying down high interest debt can be equally important as earning the “free money” from employers in the form of matching, with the extra dollars one is able to put in said retirement accounts able to grow for years and decades to come.
In that same vein, thinking about which accounts one expects to tap first, how much one wants to withdraw from savings accounts over time (so as to maintain the longevity of one’s nest egg for as long as possible), and how soon one chooses to claim social security benefits all factor into the savings picture.
Protect Against Big Risks
Healthcare professional flexing her muscles
Even investors with well-funded retirement accounts may encounter situations which leave them with much less than they were hoping to live off of, or pass down to their children and grandchildren. Knowing key Medicare timelines and options is essential to avoiding penalties and gaps in coverage. Within the same bucket of potential healthcare expenses down the line, it’s important to think about how to potentially go about receiving long-term care, either through insurance, dedicated savings, or a housing plan that anticipates potential care needs.
Having legal documents in place to empower those around you to help ensure your medical and financial wishes are honored is a great step. Having powers of attorney set up for loved ones to manage the big risks alongside you can alleviate much of the personal stress that can come with making big decisions.
At the end of the day, it’s about reducing risks of costly mistakes or conflicts at a time of life when most want things to be simpler. By doing the hard stuff now, in combination with budgeting and having a plan in place, this can ensure the sort of happy and fulfilling retirement we’re all after.
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