Want to Retire With No Regrets? Retired track and field athlete, Jackie Joyner-Kersee, says one of my all-time favorite quotes: “It is better to look ahead and prepare than to look back and regret.”
Is there a quote that is more fitting when it comes to your retirement? After all, these should be the best years of your life. Not spending your time stressing over money.
So, if you want to retire with absolutely no regrets, here are the best ways to make that a reality.
Not falling for the “retirement mirage.”
When it comes to retirement, you’ll be advised time and time again that you need a plan. Shockingly, a FinanceBuzz survey released in January 2020 found that“35% of respondents said that they have no retirement savings at all.” But, why is that?
Well, there a number of factors for why retirement isn’t in your vocabulary. For many people, just the thought of retirement causes them to break out in a cold sweat. Other people are struggling financially. And, some people just don’t know where to start.
Regardless of the reason, everyone should have some sort of retirement plan in place. However, you also need to be real about it by not falling for the “retirement mirage.”
“As we plan for retirement, many of us start with the age at which we’d like to retire and then work backward,” explains Steve Wendel, head of behavioral science for Morningstar. “What will I need to save? What standard of living will I have now and in retirement? How should I invest?”
What happens when we don’t like the answers? We “make adjustments accordingly,” he adds.
“For those of us who don’t intend to work indefinitely, when we’ll retire is the foundation upon which our retirement plan rests. Unfortunately, that foundation isn’t nearly as solid as we think,” says Wendel. “We often systematically misjudge when we actually retire, and that can wreak havoc on our finances.”
To back this claim up, David Blanchett, Morningstar’s head of retirement research, analyzed “the gap between when people think they will retire and when they actually do.” His work found “that despite our intentions, roughly half of Americans retire earlier than planned. On average, the best formula for this gap — between our intended retirement age and actual — is this: Subtract 61 from the planned retirement age, then divide by 2.”
Most older Americans born after 1955 can’t get full retirement benefits until about 67 years of age — there can be money issues. Because this fact wasn’t taken into account when devising your plan, it will be drastically off. Think this — it’s true — considering that the pandemic has forced many older workers to retire early — it’s more important than ever to have this uncertainty included in your plan.
Blanchett recommends that when you and your advisor crunch the numbers for your plan, you consider:
“What would happen to your standard of living in retirement if you suddenly retired two, three, or four years early — without saving more and without making any other changes?
For those already in retirement, did you end up retiring earlier than you’d initially planned? What effect did that have on your finances in retirement?”
Overall, given the uncertainty regarding retirement age, Blanchett recommends focusing “on saving and investing, and less on the timing of retirement.”
Retire With No Regrets: Be mindful of your financial decisions.
Regardless of your specific retirement plan, the only way that you’ll achieve it is by making the right financial moves. After all, making smart decisions today will guarantee that your financial future will be successful.
The first place to start? Covering the basics, such as:
- Creating a budget so that you aren’t spending what you don’t have.
- Paying off any high-interest debt like credit cards.
- Building an emergency fund so that you don’t have to dip into your savings.
- Putting any extra money, like a tax return, bonus, or savings from unnecessary purchases to good use. Obvious examples would be paying down debt or contributing to an emergency or retirement fund.
You’ve probably come across this advice countless times before. But, there’s a good reason for this. These simple steps ensure that you can free up some money, handle the unexpected, and stay on track with your financial goals.
Now that you’ve got the fundamentals under control, here five other financial decisions you should make today so that you won’t have regrets tomorrow.
Don’t skimp on saving.
“Not saving enough during your working years is a big mistake that may force you to delay retirement and live less comfortably once you do,” writes Stacy Rapacon, AARP. The good news? “60 percent of workers feel confident that they’re building a large enough nest egg for retirement.”
What if you aren’t as confident about your retirement savings? You can still “boost your efforts to save for retirement as soon as possible,” adds Rapacon.
“Start small and work your way up as finances allow,” she writes. “Spending a little less will let you save a little more.” And, take advantage of higher catch-up contribution limits for retirement accounts when you hit age 50.
Get involved with the stock market.
“You might think of stocks as too risky, especially amid recent market turmoil,” says Rapacon. “But skipping stocks completely is not necessarily the answer.” Why? “Investing in the stock market is your best bet for beating inflation.” What’s more, “the current rate of inflation is low; it likely won’t stay low forever.”
“Even at a low rate, any cash you’re stuffing under your mattress is losing purchasing power by that much,” she adds. “Money safely stowed at the bank doesn’t fare much better.” For instance, the interest rate for a savings account is just 0.09 percent. However, Standard & Poor’s 500-stock index “has returned an annualized 11.6 percent.”
If you want to get started with investing and trading in the stock market, Marcus Berkovitz has some excellent pointers in a previous Due article. And, when building your portfolio, keep it diversified to mitigate potential risks.
Resist the temptation to borrow from your 401(k).
It’s your money, so why can’t you borrow against it? You could. But, that may come back to bite you where the sun doesn’t shine.
”As you think about loans from retirement plans, the first thing we say is there anywhere else you might be able to borrow from?” says Meghan Murphy, a vice president at Fidelity Investments. “We think through the importance of having an emergency fund.”
What if that’s not available? Ask if there “is there any other place that you’re able to draw from?” advises Murphy. “Things you might want to think about is If it’s a medical emergency, do you have a health savings account that you might be able to take money from.”
In case you weren’t aware, you also have five years to pay this loan back. And, there are also penalties against it. If it is an emergency, and you don’t have an emergency fund, consider alternatives like stock companies.
Avoid claiming Social Security too early.
“About 1 out of 3 Social Security recipients apply for benefits at the earliest age, which is 62,” writes author and certified financial planner Liz Weston. “It’s often a mistake.”
“Benefits grow by a guaranteed 5% to 8% each year that the applicant delays,” she states. “Starting early also can stunt the survivor benefit that one spouse will have to live on when the other dies.”
Be patient and wait. You’ll receive more Social Security if you do.
Put more money into a Roth IRA.
“Making deductible contributions to 401(k)s, IRAs, and other retirement plans can reduce your tax bill while you’re working, which is great,” says Weston. “But eventually that money has to come out of the accounts, thanks to required minimum distribution rules, and it’s taxed as income.”
“Diligent savers can find themselves pushed into higher tax brackets by these mandatory withdrawals, planners say,” she adds. “The disbursements also can cause more of their Social Security benefits to be taxed and raise their Medicare premiums.”
“Financial planners recommend saving at least some money in Roth accounts, which don’t offer upfront deductions but provide tax-free withdrawals, to better manage tax bills in retirement.”
Find a balance between your lifestyle today and your savings for tomorrow.
At the same, “retirement is about more than the balance in your 401(k), writes Weston. Even people with sizable nest eggs can wish they handled certain aspects of retirement differently.”
Some examples include:
- Not traveling while you could.
- Wishing that you had more meaningful relationships like friends and family.
- Investing in timeshares or moving on a whim.
- Spoiling your kids.
- Not having something to retire to.
“The reality is, a great retirement is made of the same stuff that makes for a positive and fulfilling life leading up to it,” writes Robert Laura, aka the Retirement Activist. “Therefore, soon-to-be retirees need to take concrete steps to create a life that flows naturally from one stage of life to another.”
“In other words, retire with the new skills, habits, and hobbies in place rather than assuming they will be able to jump right in and then keep the momentum going.” Make the time to bolster relationships or make a plan to meet new people. And, if there’s somewhere, you’ve always wanted to visit, and you have the money, book the trip.
That doesn’t mean that you should be careless. You should still avoid impulsive and unnecessary spending. And, you definitely need to put something aside.
But, “don’t put off the life you want to create until you cross the finish line of retirement,” says Laura. “Start infusing your life with these ideas, plans, and actions right now.”
Don’t get too carried away with the decluttering.
“Be careful about what you throw out in haste,” warns Bob Niedt for Kiplinger. “Sentimental value aside, certain professionals including doctors, dentists, lawyers, and accountants can be required by law to retain records for years after retirement.”
What about tax records? Well, the IRS usually “has three years to initiate an audit, but you might want to hold on to certain records including your actual returns indefinitely,” he suggests.
This is also true “for records related to the purchase and capital improvement of your home; purchases of stocks and funds in taxable investment accounts; and contributions to retirement accounts (in particular nondeductible IRA contributions reported on IRS Form 8606), Niedt adds. “All can be used to determine the correct tax basis on assets to avoid paying more in taxes than you owe.”
Don’t be a scam victim.
More than 60% of Americans report that they’ve been a victim of an online scam. And, it doesn’t get easier as you age. In fact, 1 in 10 Americans over the age of 65 will become a victim of a scam that costs almost $3 billion a year.
How can you protect yourself? As a general rule of thumb, if something sounds too good to be true, it is. Moreover, you need to keep your money safe
Keep your finances safe online by:
- Work only with FDIC-insured banks.
- If you can pay the balance off, use your credit card since it offers fraud protection.
- Consider identity theft protection.
- Always use secure and unique passwords.
- Keep your devices locked when in public.
- Use a VPN if you’re online in public.
- Set up two-factor authentication.
- Use common sense like not providing sensitive data over the phone, clicking on email hyperlinks, and shopping on suspicious.
- Be aware of common senior financial scams involving Medicare, counterfeit prescriptions, telemarketing, and reverse mortgages.
Want to Retire With No Regrets: Schedule difficult conversations sooner than later.
Finally, you need to have some serious discussions regarding everything from long-term healthcare to funeral expenses. Ideally, this would be with your partner and children. If you’re alone, then this will be a talk you’ll have to have with yourself.
While these topics can be grim and unsettling, they’re absolutely essential. Let’s take a look at long-term healthcare costs. In-home homemaker services and health aides can range around $54,000 per year. A semi-private room in a nursing facility will cost over $93,000 annually!
To avoid these costs, prioritize your health right now. You know the drill. Be physically active, eat a balanced diet, and get enough sleep.
Furthermore, look into long-term health insurance. And, factor in healthcare costs in your retirement plan. And, have a will, living will, and power of attorney in place. You should also have a list of financial information, passwords, and emergency contacts just in case.
And if you aren’t prepared for retirement. Talk to a financial advisor as soon as possible.