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Retirement Planning – 2023 Year-End Checklist

retired couple on a sofa-retirement planning checklist

It is hard to believe that the new 2024 is around the corner! When it comes to finances, 2023 was a challenging year. There is no question the US economic outlook has improved throughout 2023 but it does not necessarily mean the economy is in a clear heading to 2024.

With high inflation, volatile stock markets, and an uncertain future due to the wars in the Middle East and Ukraine you might be worried about the cost of your retirement.

But the most important lesson I have learned from previous years is that it pays to be prepared.

As 2023 comes to an end, I want you to make sure that you take some time and complete your year-end retirement planning checklist.

#1: Set a target retirement age.

Retirement is the one common financial goal we all share. We all need to plan for the day when we can no longer work or are just ready to retire.

The target date is the year closest to the year you plan to retire. Age 65 used to be the magic number, the age at which most people retire. Yet that golden age has changed. Many people are working longer. Even though they may want to retire, it is not always possible because they do not have enough money to retire.

Take some time to set a realistic target retirement date. Based on your estimated retirement income and expenses, you can plan your own retirement strategy.

Looking at your target retirement date and retirement income, you can determine if you have enough money saved for the next 20 to 30 years. If it is not enough for a comfortable retirement, move the date and save more in your retirement funds.

Just remember that where you live and how much you can afford to spend in retirement will impact your retirement lifestyle.

#2: Look at your spending.

The end of the year is a great time to look at your personal spending and see where your money is going. With many people still working remotely, there is a good chance your spending habits have changed.

How did you do this year? Have you tracked your spending against your budget? Did you get a full picture of your finances and know how much money you have saved (or not) in 2023?

If you have struggled this year, decide how to improve your financial situation for the next year. Are there debts you should be making a priority to pay off? Look at your budget and decide if there were parts that were difficult to stick to.

Look at your credit card and bank statements and see what expenses could be avoided this year and plan to cut them in the next year.

Keep in mind that balancing your income with your spending is the key to saving more money.

Make sure you have a budget set up for the next year and decide on how much money you need to save in 2024 to meet your retirement goals.

#3: Calculate how much is your nest egg.

Do you know how you are going to pay for your retirement years?

When you are near retirement, it is important to know how much money you will need to live comfortably for the rest of your life. If you still have no idea how much money you will need, look at your current expenses and then evaluate how they might change in the future.

When you retire, you do not need a lot of things that you did when you were working. Generally, the costs of commuting, take-out lunches, and business clothes will go down. However, you might start spending more money on travel, hobbies, and activities.

Calculating your nest egg is easy if you already have a budget and know how much you spend now. The next step is to get a clear picture of how it might change in the future based on your retirement lifestyle.

Another option to figure out how much money you need to retire is to replace 70 to 80 percent of your annual pre-retirement income. For example, if you earn $70,000 per year before retirement, you should expect to live off $49,000 to $56,000 per year.

#4: Estimate your retirement income.

In my year-end review, I always find time to look at our future retirement income.

When you are working, you typically have a single employer and a single source of income – your salary. In retirement, everyone has different sources of income – Social Security, pension, part-time job, investments, and retirement savings (401k, IRA, Roth IRA, Roth 401k).

I usually look at our current Social Security, retirement, and investment funds statements to get a clear picture of our potential retirement income. I wanted to make sure that we are on track to our retirement goals and have enough money to cover our living expenses when we stop working.

To make your assets last through the next 20 or 30 years, use the rule of thumb to withdraw 4 percent of your retirement money annually.

For example, if you have $500,000 in retirement funds, you can spend roughly $20,000 ($500,000 x 0.04) per year when you retire. Add this number to your Social Security, pension, and other savings, and calculate if it is enough to support the retirement of your dreams.

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#5: Check your readiness for unexpected expenses.

Another important key factor in any solid financial plan is having enough savings to fall back on in an emergency. To be prepared, put it on your checklist to have two funds – a rainy-day fund and an emergency fund.

Typically, a rainy-day fund is smaller, up to $2,500 for smaller expenses. An emergency fund can be as much as 9 or 12 months of living expenses – $10,000 to $50,000 or more depending on your expenses.

Whichever way you build your financial cushion, be sure you do it. There is no better way to have peace of mind than knowing you have funds to cover expenses when you need them.

#6: Review your progress on paying down debt.

The end of the year is a great time to sit down and check your progress on paying down debt.

Ideally, you should be entering retirement debt-free, but in the real world that is not always achievable.

So, it may be okay for you to retire before you pay off your big debt like a mortgage, car, and student loans. Just make sure you understand the implications of retiring with debt because big withdrawals from retirement funds could push you into a higher tax bracket.

Yet, if you have several years before retirement, try to reduce your debt so you will have more money available for your lifestyle in retirement.

Credit cards and personal loan debt. When it comes to debt, plan to pay off high-interest rates debt first. The average credit card interest rate has increased in 2023. According to Forbes, the average credit card interest rate was 27.81 % in November 2023 which is higher than 2022.

Credit card debt has become the most expensive debt for many people. By reducing the existing debt and limiting new debt you can minimize the amount of retirement income that you will spend on interest payments.

For example, if your monthly retirement budget includes a $350 car payment and a $700 credit card payment, you will obviously be able to spend $1,050 a month less than someone without those bills.

Home mortgage. Once you pay off your credit card debt, start planning on paying off your mortgage. For example, if your mortgage payment is $2,000 a month, you already owe that amount of money every month before you pay for food, electricity, cell phones, cable, or any travel and entertainment.

If you have a low-interest rate, you can plan to pay off the mortgage early by making “extra” mortgage payments each month. With a mortgage paid off before retirement, you will have the extra money you need to travel in style or spoil your grandkids for years to come.

Just remember that taking large withdrawals from your retirement accounts to pay off your mortgage could throw you into a higher tax bracket.

On the other hand, if you have locked in a low-interest rate in a low-interest rate on a car loan or mortgage, paying off these balances may not be your priority before year-end.

How to Pay Off Debt Before You Retire

#7: Look at your savings and set goals for the next year.

Did you spend less or more money this year?

Did you spend less money on eating out, vacations, or activities? Did you buy less gas because you worked remotely? If yes, stash those funds into retirement savings.

If you are still working, try to boost your savings rate. It is never too late to increase the size of your nest egg. If you are in your early 50s, you still have close to 15 years of working to save for your retirement.

You should save at least 15 % of your gross income in retirement accounts such as 401(k), IRA, Roth IRA, or Roth 401(k).

A key factor in any retirement plan is having enough savings to last for the next 20 to 30 years.

#8: Review your asset allocation and simplify your portfolio.

As you are getting closer to retirement, it is important to have an accurate picture of your complete investment portfolio.

If your portfolio is spread out among several investment companies, it will become difficult to keep track of all that information. Think about consolidating all your accounts in one place like Vanguard. So, you will get simplified reporting, low costs, and low fees.

The financial markets have modest growth this year. The investors are talking about a new bull market led by AI technology. Take the opportunity to review your asset allocation and make sure your portfolio is diversified and invested for growth. You should have a mix of stocks, bonds, mutual funds, and other assets that fit your retirement goals.

The important thing to remember is that a well-balanced portfolio will help you weather market downturns. Also, it will generate a retirement income to cover your living expenses when you are not working.

It can be tempting to stay away from stocks to reduce the risk of losing money in your retirement funds. But stocks provide growth and investing in growth is important. If you retire at 65 and spend 20 years in retirement, you need to have enough growth in your portfolio to make money last that long.

#9: Keep will and trusts up to date.

Another important part of your year-end retirement checklist is the status of your will and/ or revocable living trust.

Keep them up to date and make sure you have suitable executors, trustees, and guardians in place. Additionally, you will want to make sure your list of beneficiaries is up to date as well. If you have welcomed a grandchild to the family do not forget to add his/her name to the list. Also, if there has been a change in the family such as a marriage, divorce, or death, make sure to update your beneficiary list.

As you work through your year-end financial checklist, do not forget to review your account beneficiary names. Since these names override your will, it is important to ensure they are accurate.

The following types of accounts typically have beneficiary names:

Retirement accounts, including IRAs, 401(k)s, and other retirement savings accounts.
Life insurance policies that pay a death benefit.

#10: Set financial goals for the New Year.

The final item on your 2023 year-end retirement planning checklist is to review your financial goals and set new intentions for 2024.

Keep in mind that setting and reviewing goals is an ongoing process. It helps to stay on track toward your financial and life aspirations. The end of the year is an ideal time for reflection, re-evaluation, and strategic planning.

Here are a few questions to answer before you start planning for 2024:

Do you know how much money you need to retire? What are you going to do about high inflation? How is it going to affect your retirement income?

How much will it cost to help your parent’s long-term care needs, pay for your healthcare in retirement, or pay for the vacation you really want?

Maybe none of that applies to you today but you want to know how to project into the future. You must know how much you will need to live the life you want in retirement.

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21 Smart Ways to Cut Retirement Expenses

by Maggie Leave a Comment

woman with laptop - cut retirement expenses

Cutting or reducing expenses in retirement can be tricky. You can save money on less dining out, business clothes, and commuting. But you will still have monthly expenses related to food, housing, and transportation along with all the other services you rely on.

However, you can still find ways to live comfortably after retirement. It just takes extra advance planning. Here are some tips to help you reduce or cut those retirement expenses.

How to Cut Lifestyle Costs During Retirement:

1. Trim your lifestyle and spending.

Before you trim your lifestyle and spending you need to know where your money is going. It is impossible to save without knowing what your expenses are each month. Many people are surprised to learn how much little things will add up.

For example, spending $4 – $5 for take-out coffee each day can quickly become an expensive luxury at the end of the month. The best advice is to add all expenses and see where you can trim, especially if there is a shortage each month.

Also, take a look at your purchases over the past few months and see if you can eliminate some spending habits. It might be a gym membership or yoga classes you do not go to anymore. Or maybe you can start cooking more meals at home instead of going out to eat often or ordering take-out every other day. Do not forget to keep a diary to track your spending.

2. Reduce restaurant spending.

One of the easiest expenses to cut if you want to save more is restaurant meals. Eating out is always more expensive than cooking at home. If you still want to eat at restaurants, try to reduce it to one or two visits per month. You can also opt for appetizers or split an entrée with your dining companion to save money when you are eating out.

Another option is to skip drinks and desserts at the restaurant and then treat yourself to a nightcap drink and dessert at home. It will help significantly to stretch your budget.

3. Party early.

You can save around 35% on food and 20% on drinks by eating out during a happy hour rather than peak dinner hours or later. You can check your neighborhood places to find out when they host happy hour.

Additionally, check the Happable.com website to get details on happy hour deals at local chain restaurants.

4. Prioritize entertainment needs.

Life should be fun, and entertainment is nice to have but it is not a necessity. If you are bored and looking for free or low-cost entertainment options, explore events like local art fairs, movies, or free concerts in the community park.

Taking yoga classes or reading books from the library can also be helpful if you do not want to spend a lot of money on your hobbies.

5. Get discounts on entertainment.

If you want to save on entertainment costs, I recommend taking advantage of free days at museums, entertainment centers, national parks, etc.

Another good idea is to monitor discount ticket apps and websites. Several digital businesses offer concerts, comedy clubs, theater, and other cultural events tickets at big discounts.

They include Groupon, Goldstar, and Today Tix.

Also, your local community might offer free concerts and other in-person or virtual events.

6. Enjoy community events.

Getting out and having new experiences can be expensive if you live on a fixed income. But you can find free or low-cost events in your community. Check listings at local libraries, churches, or community centers, or websites like Eventbrite.

Community events can be an economical way to keep grandkids engaged and spend time together with the family. Don’t forget to pack snacks and water to minimize the amount of money you spend on food or turn it into a family picnic.

7. Vacation for less.

Experiencing new homes away from home doesn’t have to be expensive. Check out destinations within the driving range of your town. You might be able to find an entirely different climate and change of scenery just an hour away. Also, explore options like home-sharing services to save money on hotels when traveling.

Plan your travels on Wednesdays and Thursdays. Most hotels, resorts, and inns offer lower rates on weekdays rather than weekends. So, you can plan your trips by going midweek and save money. Some resorts even offer better prices on Sunday through Thursday packages.

Book hotels last minute if you can. If you are planning a road trip and you are flexible about where to stay, book your hotel two weeks in advance rather than four months out. You can save up to 13% by being flexible on your schedule.

8. Travel off-season.

If you are planning to spend your retirement years traveling the world or the US, book your vacations off-season to save money on traveling. You can save a lot of money by booking flights and reservations outside of peak travel times – for most places that is summer.

In addition to traveling during the off-season, think about other ways to find big travel savings in retirement. Consider subscribing to a discount flight finder website to receive lists of the best flight deals to your destinations. Make your travel plans well in advance so you can track flights for at least a few months to find the best deals.

It is a smart idea to use a designated travel credit card for your everyday spending. Redeeming points and miles for flights and accommodations can mean big money savings for your retirement budget.

How to Handle Your Money During Retirement:

9. Understand how much you are spending.

Look at your spending over the last 3 months using your banking statements. If you use cash occasionally, write down what you think you spent on some of your purchases. Start keeping a spending diary, spreadsheet, or notebook so you get an accurate view of your expenses.

10. Budget for now and the future.

Saving is always important, even after you have retired. Create a retirement budget and allocate some funds for savings. Try to build a solid emergency fund that could cover at least 3 months of your expenses in your savings. So, you would need to sell your stocks or bonds in a rush to cover an unexpected bill.

11. Set up a retirement budget.

Setting up a retirement budget will help you limit your expenses and ensure that you have enough income to work with other major steps. If you are worried about running out of money in retirement, consider reaching out to a financial planner.

A financial planner will help you make sure that you are spending the optimal amount of money for your financial situation. Even though financial planning comes at a cost, it can be a huge relief to get professional support for managing your money in retirement.

12. Create 50/30/20 budget.

One smart way to manage your retirement money is to follow a budget which means setting priorities for your spending. You can create a 50/30/20 budget for your money management.

This approach means that you will spend 50% of your after-tax money on your needs (essential), 30% on your wants, and 20% on savings and any debt payments.

Your 50% essentials should include:

Housing
Transportation
Utilities
Groceries
Insurance

30% of your income for your wants:

Gifts
Charity
Entertainment
Travel
Hobbies

13. Think about housing costs.

Usually, housing is the single largest expense in most households. So, look at your monthly housing expenses and think about how you can downsize or lower the costs to save money.

Whether you are approaching retirement or already retired, consider these strategies for reducing your housing costs:

Pay off your mortgage. If you have the ability to pay off your mortgage in full, go for it. Doing so can eliminate the biggest expense in your retirement budget.
Downsize to a smaller place. Some retirees choose to downsize their big homes by moving to a smaller house, condo, or townhouse. This can be an especially good option if you have a lot of home equity, or your mortgage is paid off. In this case, selling would allow you to buy a new smaller home in cash and pocket the difference. Downsizing to a smaller home can also help you cut back on utilities costs, taxes, home insurance, maintenance, and yard care.

14. Reduce your debt.

When living in retirement on a fixed income, you will not have more money tomorrow to pay off the debt that you accumulated today. Debt payments can be a huge burden on your retirement budget. Also, debt is stressful because it can accumulate quickly when it builds interest.

If you are carrying any high-interest rate debt in the form of credit card balances and personal loans, make a plan to repay it ASAP.

High-interest debt is always a burden on your long-term budget because the longer you spend paying it off the more you sacrifice on interest charges. That is especially true when you are living on a fixed income. Reducing your debt faster is a big opportunity to save money in the long run.

15. Sell a car.

For most retirees, the transportation expenses are the second biggest spending category. According to stats, the transportation costs are 16% of retirement costs. That is even more than healthcare costs, which is 13.4% on average.

If you still have two vehicles, consider selling one. You may no longer need two cars for your household when you are not commuting every day to work. If you still have to drive around, to the events or appointments, you may be able to coordinate with your spouse or partner to get by with just one car.

Downsizing to one car can help you save on car loan payments, gas, car insurance, and maintenance costs. Additionally, if you live in an area with good public transportation and many walkable streets, you may be able to get around without a car.

16. Reduce insurance premiums.

Another way to cut your retirement expenses is to reduce insurance premiums. You can ask your home insurance company for a senior discount. Many home insurance companies provide discounts for retirees because they spend more time at home which reduces the risk of fire, flood, or robbery.

Also, you can tell your car insurance company that you will no longer be driving to work. The more you drive, the more chances for you to get into an accident. Daily commuting is a big risk factor because car collisions typically happen during periods of heavy traffic. When you retire, contact your car insurance company, and ask them if you qualify for a low-mileage discount.

17. Prep for grocery shopping.

A little work before you go to the grocery store can go a long way toward saving money on food. Check your pantry first and make a shopping list to avoid an impulse to buy something you do not need.

Use coupons, and senior discount days and join loyalty programs to maximize your savings as you shop. In exchange for sharing your phone number or email address, your local store’s loyalty program might offer additional discounts.

If you shop for groceries at a large store like Target or Walmart, you can often find additional savings by downloading the store’s app on your phone. Apps like Flipp help you sort through sales flyers and coupons from local stores when you enter your ZIP code.

Many credit cards offer cashback today. Search the internet for cards that offer the most cash back for groceries. You might find a card that will give you 3 or 5 percent back on food purchases.

Websites like CardRates and NerdWallet let you compare your card with others.

18. Restrict online shopping.

One way to avoid overspending is to restrict online shopping. The temptation to spend is everywhere we look, especially on our screens. You can make it more difficult to shop online by shopping online only with purpose.

To prevent buying things you do not need, avoid aimlessly browsing your favorite websites or online sales like Black Friday, Cyber Monday, or Super Saturday sales.

Another way to restrict online shopping is to give yourself a cooling-off period between the time an item catches your eye and the time you actually make the purchase. Consider putting the item in your online shopping cart and then walking away until you have had more time to think it over.

19. Lower medical care costs.

We all know that medical costs can add up in retirement. Many retirees are worried about rising healthcare costs and unexpected medical expenses.

One of the best ways to save money is by doing your best to stay healthy. You can improve your overall health by building exercise and healthy eating routines. It is important to remember that preventive care is a big money saver. You should go and see your doctor regularly for preventive health care measures.

If you are a smoker, you should consider quitting smoking. It will help you greatly reduce the risk of certain health problems which eventually can help you save on health care expenses.

20. Do It Yourself.

When you are retired, you are usually rich in time. That means you can now tackle household maintenance items on your own instead of hiring someone else to do it. In addition to cost savings, you will keep yourself busy doing physical tasks to live longer and be healthier.

Another way to save money and go with the ‘do-it-yourself’ route is to get creative with gifts. During the holidays you can save money with affordable gifts like baking cookies or preparing someone’s dinner. You can also treat someone with the gift of your time by taking them to a local (free) museum, art gallery, or a community event.

21. Seek out bargains and discounts.

Using senior discounts is another way to live on less money and still enjoy your retirement. Seek out bargains, use coupons and deals websites to take advantage of senior citizens’ discounts. The money you save adds up over time.

Retirees can usually save on restaurants, travel groceries, and much more by simply shopping on specific days or verifying their age when checking out.

You can ask for a senior discount at many places:

gym membership
local museums and concerts
state parks and beaches
golf courses
restaurants
local stores and supermarkets

Is Renting a Better Option in Retirement?

by Maggie Leave a Comment

street in small town - rent or buy in retirement

When the kids are gone, you might start thinking that your four-bedroom family home feels a bit too large, not to mention a money drain. Probably you need less space, and you want someone else to take care of it. But now you need to decide if you want to buy or rent.

Owning real estate is a big part of the American lifestyle. However, ownership is more expensive than most people realize.

When you are getting closer to retirement it may be more important to secure income from your retirement portfolio than to drop money into a new house.

Besides making a financial decision, you need to think about how it will fit into your new lifestyle. Do you love to own your place and fix it up the way you want it? Or it will be a big relief not to worry about yard work, broken faucets, or a water heater?

If you’re getting closer to retirement you might already have an idea how you want to spend your days. Buying a condo by the water or on a golf course might fit your retirement lifestyle perfectly. Other people would prefer to sell the house, cash out, and spend money on travel. So, renting would be a better option for them.

How to figure out if you are better off renting or buying?

Factors to consider as you decide

When deciding whether to buy or rent, calculate how much is your retirement income and then how much income you will need to pay the bills.

Keep in mind that the housing cost is the biggest category in your budget. Then you should look at the home prices in your new location and compare it with the yearly rent in the same community.

Here are some key factors to help you with your rent or buy decision.

Renting in retirement:

Whether you want to rent a smaller house or a downtown condo, you need to decide what you want out of a rental. And again, it will depend a lot on financial and emotional matters.

The upside of renting

Your money is not tied up. Owning a home in retirement is not always financially wise. If renting is cheaper than owning, you’ll be better off investing your retirement funds and letting it grow.

It can increase your retirement income because investments often grow at a faster rate than real estate. The only money you tie up is your security deposit. With the fixed cost of rent and no taxes or insurance, you can have enough cash for travel, activities, or charity.

For example, you sell your house and get the sale proceeds worth $500,000. If you decide to rent, you can have that money invested. Assume a 5 percent annual return on your investments or $25,000 which means a monthly return of $2,083 ($25,000:12 = $2,083).

If you can rent a comparable home for that price, you would be well financially without the hassle of ownership.

No maintenance, renovations, or repairs. When you became a tenant, you hardly had any responsibilities, besides paying rent on time.

So, when the water heater needs to be replaced or the faucet leaks, you just pick up a phone and call the landlord. You do not need to worry about the upkeep of the rental building or any repair costs. You can spend time and money on things you like to do.

Less space and more amenities. As a retiree, you do not need a big car to drive kids around and you do not need a third and fourth bedroom when it is just one or two of you.

You are more likely to want a pool or gym somewhere on the property, and a janitor who will fix a leak and take care of the yard.

In general, rental units in apartment buildings or condominiums tend to be located closer to town centers. You can walk to the coffee shop, museum, library, or the bus stop a block away from your place.

Lifestyle flexibility. Lifestyle flexibility is a key advantage to everyone who rents. For retirees, flexibility means having the option to move to be near children, grandchildren, or family members. The other option is to spend different parts of the year in different places or abroad.

When you need a change in your life, moving out of a rental can be much faster than moving out of the house. Landlords cannot stop you from moving out even though it may be a fee for breaking a lease.

You do not have to worry about selling or renting out your home. On the other hand, selling a house can take months sometimes years, depending on your house conditions and the local housing market.

The downside of renting

Annual rent increases. Usually, rents go up every year. When you own a home, your mortgage is a fixed payment, and you can only expect an increase in taxes and insurance. While renting, you could expect a 3 to 10 rent percent increase every year.

Unfortunately, you do not build any home equity with every payment. Besides, when the real estate market is booming and prices are going up, you do not get any appreciation as a renter. Your landlord builds equity and gets all appreciation from the rising real estate prices.

No feeling of security. Dealing with a landlord is not always easy. Your landlord can decide at any time to sell the place, force you to end the lease, and find another place to live.

Inconveniences of renting. Renting a place might include many inconveniences. You will need to get permission from a landlord or property manager if you want to re-paint or decorate your place.

Some rentals do not permit pets or have a strict pet policy. You might deal with issues like noisy neighbors, poor maintenance, shortage of parking places, and more.

Owning in retirement:

When you start thinking about downsizing you need to decide whether homeownership or renting makes the most sense for your situation. Like any decision, it will depend a lot on emotional and financial issues.

The upside of homeownership

Sense of stability. Homeownership gives you a sense of security and stability. Many people feel safer knowing that they own their home. There is a sense of security in knowing that this is your home, and nobody will kick you out of it.

Furthermore, you do not need to worry about a landlord bumping up the rent or starting a major renovation and asking you to move out.

Fixed mortgage payments. Many retirees worry about mortgage payments and how to afford them in retirement while living on a fixed income. But if your mortgage is paid in full, you will only need to pay property taxes and insurance.

However, if you still have a mortgage and have to make mortgage payments every month, it will come as a fixed payment.

Home equity. There is another important advantage of homeownership – building equity. With every mortgage payment, you accumulate more home equity. Then if you need it, you can take a home equity loan, line of credit, or even a reverse mortgage.

Increase in value. Everyone knows that housing prices are going up. In many popular places, you can see a significant increase in value if you own a home for 10 or 15 years.

Control over updates or improvements. If you own your home, you can make any kind of improvements or renovations without asking the landlord’s permission. The same comes with pets. There are different kinds of policies and restrictions on what kind of pets are allowed in rental buildings.

The downside of homeownership

Your money is tied up. If you decide to buy a house or condo in retirement you will be using a big chunk of money for a down payment or paying full price in cash. Your money will be tied up in that home for a long time.

Think about where the money will come from to pay your housing expenses. Keep in mind that the insurance, taxes, and upkeep of the house go up every year.

Also, it is going to be harder to get a mortgage when you retire because you do not have an income. So, if you consider buying a home, make sure to do that before you stop working.

The costs of repairs, maintenance, and renovations. We all know that owning a house means repairs, maintenance, and yard work. It could cost thousands of dollars if you need to replace the roof or your heating system. Maintaining the house and the yard takes time and money.

Moreover, you might want to renovate your new home and make it more personal. But it could be expensive when you live on a fixed income.

Hard to sell. Your home is a real estate investment and real estate is not considered a liquid investment. It cannot be quickly converted to cash like stocks or bonds. As a result, it is hard to sell when you need money.

There are a lot of tradeoffs between renting and owning. There is no right answer for everyone. You have to decide what fits your lifestyle and cost of living.

Moving in Retirement? 5 Things to Consider

by Maggie Leave a Comment

photo of a village - moving in retirement

Many people are planning to relocate to a new place in retirement. But everybody wants to move for different reasons.

Some want to be closer to family and friends, others want to reduce expenses and downsize to a smaller home. Many new retirees want to move to a better climate. People might feel quite isolated during long and cold New England winters especially when they are older and no longer working.

However, there are still many people who would like to stay in their homes as they age. But it’s not always possible or practical. It may be too large to maintain or to be too far from people you love.

Whatever your reason to move to another place in retirement, keep in mind that your new location meets your needs in the long run. Because relocating is not easy. It can be expensive and stressful.

Before actually moving to a new state or community (even abroad) in retirement, there are many things to consider.

Access to healthcare.

As much as we might want to deny it, we will all need more health care as we grow older. That means we will need easy access to good hospitals, medical centers, and quality healthcare providers.

Also, do not forget to consider other health services such as physical therapy, massage therapy, and other services you might want to use.

If you are planning to move to a small coastal town in Maine, you will be quickly disappointed if the closest hospital is two hours away. Not to mention the tedious task of finding new medical care providers whom you like and trust. So, before you move, make sure that you know the local healthcare standards.

To live closer to family or not?

Most of us have children, grandchildren, and a social network of friends. Numerous studies have shown that one of the absolute musts of a happy retirement is proximity to friends and family, which is good for us both mentally and physically. If you move away, you can make new friends, but you cannot make new family members.

How often do you think you will visit relatives you left behind? How much does it cost for you and your family to make a round trip? You should be asking yourself these kinds of questions if you are planning to retire in another state or abroad.

Don’t underestimate the emotional impact of leaving your family and friends behind. And perhaps the costs of staying connected. Will you feel the need to travel back often?

Certainly, we interact these days through Zoom and other virtual platforms. That’s a convenient way to speak with each other and share what is happening in our lives. But still, is it the best way to feel connected? You might miss spending birthdays, holidays, and other events together with your family or friends.

On the other hand, many retirees choose to move out of state to be closer to their children and grandchildren. While it can work great for some families but not for others. Maybe you leave your friends behind and move closer to your children only to discover that they are so busy with their careers and schools that you see them much less than you’d hoped for. It happens.

Just accept that moving your physical, financial, and social life to a new state is a big task and will come with some unexpected challenges. You just need to figure out what works for you both financially and emotionally.

Is Relocating in Retirement a Good Idea?

Pay attention to taxes.

Even in retirement, you can expect to pay taxes. Some states are more tax-friendly than others. So, it is important to know the situation before you decide to relocate.

For example, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and Alaska states do not have a state income tax. All other states do.

So, if we move from Massachusetts where we live right now to Florida, we will get rid of a state income tax. But if you move from New Hampshire to South Carolina, you gain a tax. And there are other dues and fees to consider. Before moving to a new state and community, find out how much people typically pay in property and sales taxes.

The federal government taxes Social Security benefits. In addition to that, certain individual states also apply their own income tax to Social Security payout. Fortunately, even those states do tax Social Security, they often provide exemptions or ways to reduce or eliminate the tax, typically based on your age or income.

Hence, if you rely on Social Security as your main income, it is important to learn how Social Security benefits are taxed in your new state.

Can you really afford it?

One of the biggest reasons that people move to a new area in retirement has to do with money and the cost of living. We move to a state that is less expensive to make our retirement savings last. That could come in the form of more affordable housing costs, lower taxes, cheaper healthcare, or a combination of all of these together.

Cost of living in a new location.

It is not a secret that your cost of living will differ significantly from state to state and even town to town. If you have put together your retirement budget, you will know approximately how much you can afford to spend. What will your costs be in the new location?

Look at the houses in the area you are planning to relocate, and find out how much utilities, home repairs and maintenance, yard care, and other typical living expenses cost on average. Other costs are homeowner’s association fees, condominium fees, homeowner’s insurance, and transportation.

Homeowner insurance.

The average cost of annual premiums for homeowners’ insurance fluctuates from $376 to $3,576 depending on the location. The potential for local natural disasters such as hurricanes, tornadoes, earthquakes, fires, and flooding plays a role in those premiums.

It’s worth researching how much more or less you have to pay for homeowner’s insurance.

House size – big or small.

When shopping for your new home think about the size. Do you need three bedrooms and two bathrooms for two people even if you expect visits from your children, grandchildren, and other relatives? They can always stay at nearby hotels or rent an Airbnb.

Even if you help to pay for the hotel bill it will be cheaper than the extra money you have to pay for a large size house. Think about real estate taxes, insurance, maintenance, and yard care.

How to pay for your new home?

The cost of housing is typically the largest category in your budget. Keep this in mind while deciding how to pay for your new home. Do you have enough home equity or no mortgage at all to buy your new home with cash? In this case, you do not need a mortgage.

If you use the proceeds from the sale of your home to buy a new one with cash, consider how you will invest the rest of the money. But if you do not want to use all of the proceeds or the proceeds of the sale are not enough, you should consider a mortgage.

Keep in mind that retirees often face certain challenges when applying for a mortgage. The biggest challenge is to show lenders where their income is coming from.

Sources of income can be Social Security, dividend income, rental income, withdrawals from retirement accounts, etc. Your income should be well documented, sufficient, and sustainable to apply for a mortgage.

Location and community.

When you are thinking about moving to a different part of the country, location is important. Every place is different.

First, think about the type of lifestyle you want as you age. What kind of activities do you enjoy and what location might be a good fit for you?

If you like entertainment and going out, consider a city with lots of dining-out options, museums, art galleries, and concerts. If you love to spend time outdoors, you may want to live in a place with a warm climate and lots of outdoor activities.

Before you move, do your homework, and find out what is available in the town you will be moving to.

For example, if you choose to move to an active adult community, ask people who live there what is their lifestyle. Plan to visit the community to check it out yourself. Would you be comfortable living there on a full-time basis? Would you like the lifestyle and the whole atmosphere there?

If you are relocating to a single-family and condominium neighborhood, find out what kind of recreational activities and social life are available. If there are any good quality medical services and hospitals nearby.

If you plan to travel or expect visits from the family, consider the proximity to an airport. Will you need to have connections to international flights?

Hence, before you decide to buy a house in your new location, rent a place first to give it a trial. A place that seems like a dream may be less than what you expect in reality.

As we age, our comfort and sense of happiness are important. If you consider moving in retirement to a new place, you should find a place that brings you joy and happiness.

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7 Steps for Managing Money in Retirement

by Maggie Leave a Comment

Retirement often means big changes in your financial life. Financial priorities will change as you move from saving for retirement to generating reliable income from your retirement savings. Sources of your income will shift, as well as your expenses.

As you plan for retirement, you need to project your life ahead for 20 to 30 years as best as you can. Financial stability is important at any age, and typically it begins with smart money management.

Here are the 7 steps for managing your money in retirement.

Step 1. Determine your budget.

It is important to know how much you will spend in retirement. You will not have the safety of every month’s paycheck to support your expenses. The amount that you spend is extremely critical to how long your money will last in retirement.

You have to be careful and not spend a lot of money early in retirement because it could deplete your resources early. If you deplete your retirement funds early, you may need to cut back later. Or it may mean going back to work when you are older.

A retirement budget is critical because it shows what your income is, what your expenses are, and what amount of money you need to have a comfortable retirement.

You can determine your budget around your needs and wants:

Do you still have a mortgage on your home?
Are you planning to downsize or retire in place?
Are you planning to stay put or relocate in retirement?
Can you move to a more affordable place and save?
Do you plan to reduce your expenses?
Do you plan to travel in retirement?

Your budget should show your retirement income sources such as Social Security, pension, part-time job, and withdrawals from retirement and investment accounts. Most importantly, it shows if you have enough retirement income to pay for rent/ mortgage, utility bills, groceries, transportation, taxes, healthcare, and other costs of living.

Also, you need to be as honest as possible and even add to your budget some extra unforeseen expenses and emergencies like home repairs, car troubles, and unexpected medical procedures.

It is a good idea to start more conservatively with your estimates. It is better to assume that you will spend more than you actually do when you retire, so you will have more flexibility later.

Step 2. Create reliable retirement income.

When you finally retire, you need to figure out how to turn your retirement savings into a consistent retirement income. In fact, studies show that retirees who have guaranteed retirement income are less stressed than retirees who make random withdrawals from their retirement accounts.

What are the guaranteed sources of retirement income?

Social Security and/or pensions are considered the source of a guaranteed retirement income.

An annuity is another source of guaranteed retirement income you have to create yourself. When you buy an annuity, you will turn your retirement savings into a predictable retirement income.

One of the most popular methods of creating a retirement income is to create different money buckets or accounts for different spending needs.

For example,

Near-term income. The first bucket is called a cash bucket and has 2 or 5 years of income in cash reserves. This bucket contains your cash and short-term fixed-income investments that can be easily converted to cash. These are your safe assets that can generate income. High-yield savings accounts can be a good place to keep your money.

As you use money from your first bucket with cash reserves, you will need to replenish it with cash from other buckets.

Mid-term income. The second bucket contains investments that you will need for about 3 to 7 years. The second bucket should have a mixed investment in things like bonds, CDs, and mutual funds. These types of assets will provide income and growth.

Long-term income. The third bucket contains assets that you don’t need to tap for 7 to 10 years. This bucket can provide growth and can be invested in stocks and mutual funds. You have to plan not to touch this bucket for at least 10 years. The goal here is to have a strong ability of solid long-term gains and more time for investments to recover from the ups and downs of the market.

As you manage your money, it is important to keep safety in mind. While you may feel safe keeping all your assets in short-term income investments, you will lose out to inflation over time. Your portfolio needs to have growth. On the other hand, you cannot have all your assets in stocks because of the stock market volatility.

Step 3. Cut back on your expenses.

Once you are retired, there are not so many options to make money. You need to live with what you have. In retirement, every expense needs to be accounted for.

Generally, you cannot avoid expenses like utilities, food, transportation, taxes, healthcare, and rent. But you can manage your discretionary expenses like entertainment, travel, hobbies, and activities with caution. This doesn’t mean you shouldn’t enjoy your retirement years.

But with smart money management, you should pay for them out of retirement savings that are specifically allocated for longer-term goals. Otherwise, you can drain your retirement funds fast and have to go back to work.

When planning for smart money management in retirement, be prepared for spending shifts.

When we first retire, we should expect to spend more because we are still active and like to do lots of things. After that, we enter a period of slowing down and staying closer to home. We should expect to spend less on entertainment, eating out, and traveling.

As we grow older, we need to be prepared for medical spending because our medical expenses will grow every year.

Step 4. Make withdrawals from the right accounts.

When managing money in retirement, every penny counts. That is true when it comes to tax savings.

You must make the most out of your tax-deferred retirement accounts, such as 401(k) and IRA. The longer you give them compound without having to pay tax on the capital gains, the better off you will be.

That is why financial advisors recommend that the order of withdrawal from your accounts should be the following:

Taxable (investment) accounts
Tax-deferred accounts – 401(k), IRA
Tax-free accounts – Roth IRA, Roth 401(k)

Step 5. Be smart with your withdrawals.

A simple way to stretch your retirement funds further is to manage your withdrawals smartly.

To achieve this, you need to calculate how much money you need each year to live on. Then you need to figure out how much you can safely withdraw each year to meet your needs and wants. And do not forget to account for the income tax impacts of those withdrawals.

The most recommended 4 % rule is a good starting point. You should be able to withdraw 4% annually without running out of money for 30 years if you have saved a sufficient nest egg.

If you did not save enough money to have a comfortable life in retirement, many experts recommend taking only 3% from their accounts. It is better to play things extra carefully. A small misstep early in your retirement could drastically affect your retirement years.

By leaving money in the account, your investments have a chance to grow in future years. Thus, going with a lower withdrawal rate will be more a conservative and smart way to manage your retirement funds.

Step 6. Look at your home equity.

Home equity is going to help out many of us who are lucky enough to own a home.

Your home is not only a shelter with a roof and walls but also your biggest financial asset that has increased in value over the years. For most households, home equity represents the biggest source of wealth.

There are many ways we can use that wealth to pay for our retirement.

Downsizing is one of the best ways to access the money you have in your home. It is a great option if you live in an expensive area, or your home is too large for your needs in retirement.

This may not matter to you if you have saved a sufficient nest egg for retirement. But most people have a limited amount of retirement savings. Downsizing and moving to a more affordable place to live could make all the difference in allowing your savings to last longer.

Keep in mind that housing is your biggest budget item. Even in retirement housing costs as a percentage of spending will remain around 35% on average.

Reducing your housing costs now will give you more cash to put toward your other retirement goals. Once you are retired, the fact that you have lower housing costs means you will need less income in retirement for this essential expense.

A reverse mortgage is often the best choice if you like your home, do not plan to move anywhere, and own your home mortgage-free. A reverse mortgage allows you to borrow some of your home equity while retaining ownership of your home.

There are many benefits of getting a reverse mortgage. It provides you with regular income and does not require monthly payments. You still have to pay taxes and home insurance, and you will be responsible for maintenance.

But the best part is that you will receive a portion of your home equity in cash without requiring you to move out. However, the loan has to be repaid when the owner leaves the house.

6 Ways to Fund Retirement Lifestyle with Home Equity

Step7. Rebalance your portfolio for income and growth.

When you retire, your biggest challenge will be balancing the need for income today with the need for growth in future years.

When you are planning for 20 to 30 years in retirement, you need to rebalance your portfolio. But you need to play carefully with your portfolio to make sure you have enough money for today and tomorrow. Hence, if you can generate enough income from only a portion of your portfolio and let the rest grow, you are going to be in good shape for the long run.

You need to decide how much to allocate to stocks and how much to bonds.

Some financial advisors recommend a mix of 60% stocks, 35% fixed income, and 5% cash when you are in your 60s. As you age, your portfolio should become more conservative. This means having a smaller allocation in stocks and a higher allocation in bonds and fixed-income investments to preserve your capital.

Managing and rebalancing a portfolio requires a lot of work. If you don’t want to do it yourself, you have the option of working with a financial advisor who can do that heavy lifting for you.