1. Avoid debt
As Americans approach or enter retirement, thriftiness becomes more important. If you’re nearing this stage, consider avoiding new debt. Taking on debt while you’re in the “retirement red zone” – or 10 years before you retire and 10 years into retirement – can be a costly mistake.
New liabilities will put more pressure on your budget, diluting savings that could be paid toward other needs. Baby boomers tend to not be thrifty as their parents were, so be self-critical. Say you’re thinking about buying something. It’s advisable to pay cash, and if you don’t have the money now, consider delaying the purchase until you do have the money.
2. Considering wiping out existing liabilities – especially the mortgage
If you’re around 10-15 years or less away from retirement, now is a good time to pay off existing debt. That especially goes for the mortgage. According to the most recent data from the U.S. Bureau of Labor Statistics, housing costs were the greatest expense for retired households in 2014 – inclusive of mortgage payments.
Once you’ve left the workforce, the paychecks for your employment cease. Now you’re living off savings that you’ve put aside over a lifetime. Getting rid of debt now means more financial freedom later. It helps free up savings, leaving more money to invest or spend as you wish.
3. Determining future expenses Consider your current financial life. Do you have anything now that you won’t have or do in your retirement years? Based on current spending habits and assuming a 2-3% inflation rate per year, it helps to develop a personalized snapshot of what future monthly income needs will be like.
retirement years? Based on current spending habits and assuming a 2-3% inflation rate per year, it helps to develop a personalized snapshot of what future monthly income needs will be like.
I could devote an entire article to this, but here are some overall basics to follow. Your income plan should account for the different areas of spending: housing, food, transportation, clothing, utilities, insurance, entertainment, gifts & donations, hobbies, and medical needs. Of course, there are miscellaneous expense categories which might be outside of typical monthly costs: house maintenance, income and property taxes, automobile upkeep, holidays, vacations, appliance upkeep or replacements, and other such areas. Once these numbers have been determined, the total can be divided by 12 for a total monthly projection and added to the total of your other cost projections. With life expectancy on the rise, it’s ideal to have projections run for 30 years. Be sure that inflation is accounted for in each year, as well.