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6 Steps Guide to Organizing Finances for Retirement

women planning tasks w/ sticky notes-organize finances for retirement

When I think about retirement I think about financial security in my golden years. It’s not about the size of your nest egg, but about how to manage your finances.

You need to get a clear financial picture before you quit your job. You need to figure out everything about how many accounts you have, how to manage them, in what order to withdraw money, tax liabilities, how your investments will generate income.

Organizing your finances for retirement will help you to feel more comfortable with your retirement decision. Instead of giving up on the retirement bucket list, you want to match your lifestyle to your available resources.

Moreover, organizing your finances for retirement will give a sense of control over your life. It will make the transition to retirement much easier to manage.

In this post, I want to go over 6 steps required if you want to get your finances in order before retirement.

1. List all your retirement accounts.

laptop, notepad and coffee -organize finances

In retirement you’ll be paying yourself from the savings you have accumulated over the years. Thus, the first step to organizing your finances should be listing out all your retirement accounts.

Over the years Roman and I accumulated several 401(k) accounts from different employers. We managed to roll over them to our individual retirement accounts – IRAs and even Roth IRAs.

So far, we have multiple retirement accounts – (1) 401(k), (1) 401(k) Roth, (3) IRAs, (2) Roth IRAs and (1) investment account. I want to simplify our finances before we retire and combine them into one account.

When I roll over these accounts to a consolidated investment account it will be much easier to work with available funds. It will be easier to manage money withdrawals and decide on an investment approach with only one account.

Listing out all your retirement accounts will give you a better idea of the available money you have to manage.

2. Write down your assets and liabilities and calculate your net worth.

white graphing paper with numbers - organize finances for retirement

You next step is to organize your assets and liabilities/debt. This step should help you to get a general overview of your finances and estimate your net worth.

You can do it on a simple piece of paper or create a spreadsheet in Excel, Word, or Google.

How to Make a Spreadsheet in Excel, Word, and Google

Assets

List everything you own. Start with your major assets like home, cars, boat, vacation home, rental properties, collectibles, gold coins, and anything else that has tangible value.

When you list these items try to come up with their real value and not the price you want to sell those things. Your major assets gained a lot of value over the years and can be sold if you’re ready to liquidate them or in a bad financial situation.

In addition to gathering information about the value of your major assets, you need to add information about other savings outside of your retirement accounts. List all your bank checking and savings accounts, investment accounts, stocks or bonds, CDs, and money market accounts.

Liabilities/ debt

List everything you owe. This should include mortgage balances, car loans, student loans, credit card debt, and any other debt or loan you may have.

Your net worth

Calculating your net worth is quite a simple task. Calculate the total of your assets and subtract the total liabilities/debt from that number.

Total Assets – Total Liabilities = Net Worth

You might have a negative net worth, which means you have too much debt. In this case, you need to work your way out of it as soon as possible. It will be a big mistake to start your retirement with too much debt on your hands while living on a fixed income.

3. Social Security as a retirement income

long pier on the lake - retirement security

In 2020, the average Social Security benefit for a person who retires at 66 is $18,036 per year or $1,503 per month. If you’re married the combined income will be higher.

Many Americans will rely on that paycheck as a basis of their retirement income. Social Security is called a guaranteed income. And the best part of it that it will keep coming in as long as we live.

When you start organizing your finances for retirement, it’s important to know how much your Social Security paycheck is. Look at your statement from the Social Security Administration.

Social Security

When you open the link to the website, sign in, or create an account if you don’t have one. Your Social Security statement will show how much you could expect to receive at a different age.

Depending on your birth date and year, you’ll see several numbers of expected income. The lowest income will be If you decide to claim your benefits at age 62, and the highest at age 70.

Whatever age you decide to retire, be careful of claiming your benefit right away and look at the numbers first. I always like the idea to retire early at age 62, but delay claiming the benefits until full retirement age, so I’ll get higher income for life.

4. Calculate your income, expenses, and cash flow.

bulletin board with sticky notes - organize your finances for retirement

It’s important to calculate your retirement income and expenses so you would know how to manage your spending.

Income

List all the retirement income you expect to receive. This includes your Social Security paycheck, pension, estimated income from retirement accounts, investment accounts, rental properties, business (if you own), and a part-time job.

By gathering all information will help you to have a clear picture of what income will come from which account. Also, you should remember about a required minimum distributions (RMDs) which start at age 72 in 2020 (before it was at 70 ½).

Expenses

To find out how much money you’ll spend in retirement answer a few questions:

Where do you want to live in retirement?
How do you want to live in retirement? What is your lifestyle?

If you know where and how you want to live it will be easier to understand your retirement expenses.

All expenses can be divided between essential and non-essential living expenses. I like to call them “need to have” and “want to have” expenses.

Essential or “need to have” expenses:

Mortgage or rent
Utilities
Transportation
Food
Medical and other insurance

Non-essential or “want to have” expenses:

Travel and vacations
Hobbies and activities
Entertainment

You can add to this list donation to charity, gifts, or other contributions you‘re planning to have during your retirement years.

Calculate your cash flow

Calculate the total of your retirement income and subtract your estimated retirement expenses from that number.

Retirement Income – Retirement Expenses = Cash Flow

I like to calculate our cash flow because it helps to get a clear picture of our income and expenses. It’s not about how much money we’ve accumulated over the years, but how we manage our spending.

If we want to have a secure retirement and not to run out of money fast, we need to control our expenses. I want to make sure that our cash flow is positive which means we live within our means and don’t overspend.

If your cash flow is negative it means you live beyond your means and need to cut on spending. Negative cash flow can be altered by increasing your income or decreasing your expenses. I think it’s always easier to adjust your spending habits than your income.

Understanding your cash flow situation is important because it helps you to see what kind of life you can afford.

5. Re-evaluate your retirement investment strategies

person holding glass ball -investment options

While organizing your finances for retirement, it will be a good time to re-evaluate your overall investment strategies. You need to decide what is the best way to invest your money. The invested money should provide income and growth of your portfolio during retirement years.

With age, we tend to get more conservative with our investments. When we are getting closer to retirement, we start thinking about preserving capital rather than making big profits in the stock market.

It’s recommended to have a 60/40 portfolio when you’re close to retirement. But you still need to have money invested in stocks so it will grow over time. Many people make the mistake of getting too conservative by investing too much of their portfolio in bonds. But we still need to have growth in our retirement portfolio so we can beat the inflation.

On the other hand, it will be a mistake to invest all your money in the markets. When you retire and stop receiving a steady paycheck, you need to have enough cash to pay for expenses and emergencies.

I like the idea to have one or two years of money available to provide immediate income. You can use a mix of cash and other safe investments like high quality, short-term bonds or money market accounts for quick access to funds.

6. Review all insurance policies

I try to review our insurance policies every year. But when you’re ready to retire you need to look at them more closely. Depending on your policy the home insurance could cover less or more than you need right now. The same applies to car insurance. It’s a good idea to check that your car policy isn’t covering a child who moved out of the house and not using your vehicle anymore. Make sure that your insurance policies have the cost and coverage to match your current needs.

Health insurance will come at a big cost in retirement. Our health is likely to decline with age and we will need more help from the medical professionals.

health-illness-graphic - long term care insurance

Long-term care insurance is an extremely popular topic that is discussed among financial advisors. You can spend almost $10,000 a month for full-time long-term care assistance or even more if medical care is needed.

On many occasions, Roman and I discussed if we need to buy long-term care insurance. So far, we didn’t come to any conclusions. It’s insurance and it’s expensive. You may pay a premium for years and after all, never use the coverage.

But what if one of us breaks a hip later in life. Who would help with cooking, cleaning, and bathing when the other partner is old as well? And how would you pay for someone’s help? Without long-term care insurance, you will have to spend down your funds before you see whether you qualify for Medicaid.

On the other hand, we need to look at it as we look at any kind of insurance. We have been paying for a homeowner’s insurance for years and never feel sorry that we never used it. The same was with our rental property. We had landlord insurance for a 3-family rental property we owned for years. The policy we paid for was around $1 million in liability coverage. But I feel happy that the property never burned down or being damaged so we would have to use the insurance.

It doesn’t matter if we either will need care, or we will not. What matters the long-term care insurance will allow us to afford quality care when we need it. Also, it helps to reduce the financial and emotional stress that long-term care situation can impose on the family.

Article by AARP: 5 Facts You Should Know About Long-Term Care Insurance

Putting It All Together

I’m sure that we all struggle to keep our finances in order. My biggest problem is that we have too many accounts. Lately, I have noticed that it’s getting harder to manage them. Before we retire, I wanted to make sure that we have a firm grasp of our financial situation.

My goal is to organize and simplify our finances the way we can enjoy our retirement instead of worrying about the financial unknowns. I want to have peace of mind knowing that we can manage our retirement savings wisely.

I believe that organizing your finances for retirement will help to be confident in the comfort of your next phase of life.

Have you thought about organizing your finances for retirement? Share with us your thoughts and ideas in the comments below.

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Disclosure: This information is only educational. The intent if this post is to provide a simple guideline for an extremely complicated matter. I am not providing any specific financial advice or recommendations to any of my readers.

How to Protect Retirement Savings During Coronavirus

by Maggie Leave a Comment

For the average American who is saving for retirement the latest economic and stock market news associated with coronavirus sounds terrifying. The coronavirus pandemic disrupted our daily lives and affected our finances.

For those who are close to retirement, the financial news is the most frightening. You have been saving for retirement for decades and seeing all your savings going down brings havoc to your retirement plans.

How to protect your retirement savings is the most important question for many baby boomers.

When the stock market is volatile as right now it is hard to say how long this rough patch will last. For those who are 20 or 30 years away from retirement, this market downturn should not cause major concern.

Eventually, the market will bounce back, and you will have time to recover those losses. But if you are near retirement and your retirement savings took a major hit you may want to postpone your retirement plans.

According to the Market Rates survey:

36.4% of Americans within 20 years of retirement expect the corona crisis will delay their retirement.
37% of Americans aged 45 to 64 don’t know what their investments are doing in this environment.
Of those who know where their investments stand, 43.8% of people in the 45 to 64-year-old age group reported losses of at least 10%.

For many baby boomers maybe, it is not the right time to retire now with the stock market being in free fall for many days. But it is a great time to review your plan and try to protect your retirement savings.

Adjust your retirement age and time you want to retire.

With the stock market down, unemployment high and the whole country in lockdown is hard to predict how soon our life will get back to normal. We do not know if the economy will recover fast or the country is heading toward a full-blown recession.

If you are 5 to 7 years away from retirement you still have time to protect your retirement savings by adjusting the time of your retirement. Unfortunately, you cannot change anything if you are already retired and watched your retirement savings shrunk.

However, if you are a few years away from retirement you should try to wait it out until the market is in better shape. This way you will have time to recover your losses and improve your retirement funds.

Do you know if you have enough saved for your retirement?

Look at your current savings and compare them with your financial goals. You maybe still able to retire on time if your savings are in good shape.

But what to do when you are behind on your savings or your savings have been hit hard? In this case, you maybe better off saving for a few more years and adjust the time when you can retire.

Don’t cash out your 401(k) savings.

coronavirus -a man holding US dollar banknotes

When the stock market is volatile, your first reaction is to protect your savings and pull all the money from retirement accounts. We all have that feeling when we watch the market being in free fall and expect the market will only get worse. We feel that it is the right thing to do by cashing out now before we lose any more money.

The truth is by cashing out now you can make a costly mistake. Because you cannot lose money until you sell your investments. When you sell your investment and the market is down, you will be locking in your losses.

The best thing you can do right now is to ride out the storm and wait for the stock market to calm down. As soon as the stock market starts to recover, your investments will rise in value as well. You will be happy to know that you are not missing out on all potential gains when the stock market starts to recover.

In addition to that, if you pull out money from your 401(k) and IRA accounts before age 59 ½, you will have to pay a 10 percent penalty fee and income taxes on the amount you withdraw.

Review your portfolio and adjust for risk tolerance.

a man and a woman at the table looking at laptop - adjusr retirement portfolio

Right now, it is a good time to look at your portfolio and see if you need to adjust it for your age and risk tolerance. When you get older you should modify your portfolio. More money should be invested in conservative investments like bonds, treasury notes and cash investments with less money invested in stocks.

In order to protect your retirement savings, you need to diversify your investments. Usually, investments are diversified based on asset allocation, your age and risk tolerance.

I am sure that most people set up their portfolios a long time ago and enjoyed the healthy market long run of the last decade. But recently things have changed so fast that most of us did not have time to adjust our portfolios to the new stock market environment.

However, it is not late to make some adjustments and protect your savings from future market dips. Make sure that your investments are diversified properly going forward.

If you are in your 50s think about your risk tolerance. Then decide how to allocate any new money going into your investments.

If you are in your 60s you should allocate more of your money in safe investments going forward. This strategy will allow you to keep your investments as safe as possible if the stock market will continue to fall in the future.

For several weeks I have not had the stomach to look at our portfolio and see how much money we have lost. But from the last recession, I learned the importance of having cash reserves at all times. Since then we keep 5 percent of our retirement savings in cash. It helps me to sleep through the night knowing that if things go bad and we lose our jobs we have quick access to cash. We call it our spending bucket. It helps to know that we have a temporary source of cash to pay the bills.

I would recommend keeping part of your money stashed in cash if you are close to retirement. Theoretically, you should have enough cash to cover a year of bills or even more. It should help to survive through the market downturn when you are not working.

Your spending bucket should be invested in safe assets like money market funds or short-term bonds that are not subject to big price declines. Savings accounts and money market funds are considered as cash investments. These are called cash investments because they are as good as cash. You can withdraw them at any time without penalty fee.

Don’t stop your 401(k) or IRA contributions

laptop, cup of coffee, Iphone, flower pot on the table

I think that many people drive themselves crazy checking 401(k) or IRA balance every day. It is hard not to do that knowing that the stock market is in bad shape due to coronavirus pandemic. In the current financial situation, it is tempting to cut back on your contributions because you want to protect your retirement savings. It is really easy to feel you are throwing good money after bad. None of these are good feelings.

But if you are able to keep your job it is smart to continue your contributions to 401(k) or IRA. Stay the course and when the market recovers, you will be glad that you did not miss the gain from that growth.

Some financial gurus even recommend boosting your retirement savings and contributions. Since the stock market is down you have an opportunity to buy quality investments at low prices.

On another hand, social distancing and lockdown measures make it hard for us to spend money on restaurants, concerts, sports events, or travels. When you are mostly confined to your home take that extra cash and add to your retirement savings.

If you are in your 50’s and planning to retire at full retirement age, you have 15 years or longer to contribute to your retirement funds. Time and compounding could still work for you over this time period. Therefore, keep saving and contributing money to your 401(k), IRA, and Roth IRA.

But if you are in your 60’s you have less time to recover your losses unless you want to postpone the time when you retire. Check out how much is your social security and decide if you can live off that paycheck before starts withdrawing money from retirement funds.

Article by Forbes: 6 Steps to Reduce Financial Fragility and Protect Retirement After Covid-19

Final Thoughts

Sometimes I feel that the entire world is in panic mode due to coronavirus spread. This health crisis has changed the way we live, work, and socialize. We put our lives on hold while watching the stock market crashed and our retirement savings shrunk.

However, I believe you can protect your retirement savings by adjusting your risk tolerance, asset allocation, and time of retirement. Continue contributing to your retirement funds as much as possible. By following these guidelines, you will be in a much better position to meet your retirement goals despite market conditions.

How do you protect your retirement savings during the coronavirus crisis? Share your thoughts with us in the comments below.

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5 Tips on How to Downsize for Retirement

by Maggie 2 Comments

group of older people on bycycles - downsizing for retirement

Many of us over 50 already thinking about how to downsize for retirement and where to live for the rest of our lives.

However, downsizing can be a scary word.

The first reaction is to feel that downsizing means leaving the big house where you raised your kids and create priceless memories. Saying goodbye to a place you’ve called home for decades will be difficult for every family.

But you may want to make a change when the kids moved out and you realize there are only two of you living in that big 4-bedroom house. Getting closer to retirement is a good time to start evaluating what is important in your life.

By focusing on your priorities and passions, you can make space for the things that really matter. Downsizing to a smaller space could help you to simplify your life. It will allow you to shift focus from “maintaining stuff” towards experiencing life.

For many people downsizing also means reducing the cost of living, saving money and adding more to retirement funds.

Whether you want to save money, simplify your life, or be able to travel more, downsizing can be good for retirement living. Check out our tips to see if downsizing is the right choice for you.

Here are 5 tips on how to downsize for retirement:

Downsize to save money and reduce the cost of ownership.

folded dollar banknotes on a table -5 tips on downsizing for retirement

We are all emotionally connected to our home. However, home-ownership comes with huge financial responsibilities. Housing is the largest expense for most people. Do you know how much your current home costs you? if not, it is time to sit down and calculate the combined cost of mortgage, taxes, insurance, utilities, maintenance, repair, and renovations.

Average American household spends around $13,153 annually on home-related expenses without the cost of a mortgage. Our family spends more than $28,000 a year on mortgage, taxes, insurance, utilities, and maintenance. This is 25 percent of our annual budget without the cost of major repairs or home improvements.

Downsizing is a big decision that will affect your finances. Here are some questions to answer:

Are your kids grown, and moved out of the house? Is it a big house with a big yard? Do you have more space than you need? Do you live in a high property tax area?

If the answers are yes, what keeps you in your home?

The smart choice will be to sell your home and move to a smaller home or condo. Downsizing to a smaller home or condo will help to reduce your utility bills, property taxes, and cost of maintenance. This way you can save more money by reducing the cost of ownership and get extra cash into your pocket today.

In addition to that, downsizing can significantly increase your retirement savings and affect the quality of your life in retirement. After the sale of your home, you will end up with extra money that can be invested. Or your mortgage payments will be reduced if you get a mortgage for a smaller home.

Calculate the cost of selling a house and moving out.

If you decide to sell your home and move out it will come with the price. Even a paid-off home cannot be sold for free. When you talk to a local realtor, you’ll find out information about the local real estate market and for how much you can sell your home. Once you get the estimated price, you should subtract from that number the following:

Realtor’s fee (typically 5 -6% of the sale price)
Cost of upgrades and staging
Attorney fees and sale taxes
Your remaining mortgage balances

The final number will show how much money you’ll put in your pocket after a home sale.

Most people feel overwhelmed by the idea of selling home. But moving out add more apprehension to the whole process. Moving out of a home where you spent many years of living will come with additional expenses.

First, you need to decide what to do with all your belongings – what to keep and what to sell. Then you need to pack, figure out logistics and hire movers.

The average moving costs depend on your local area. Usually, local movers charge by the hour. In the Metro Boston area where we live to hire professional movers is very expensive. Once, we decide to move out it will cost us $119 per hour for 2 movers and truck, $139 per hour for 3 movers and truck and $169 per hour for 4 movers and truck.

According to the American Moving and Storage Association, the average cost of a move is $2,300 within your state and $4,300 between states.

Moving Cost Calculator – Figure Out How Moving Changes Your Finances

Decide what to do with your possessions.

table with tea cups, lipstick and young and old women hands

Over the years we have accumulated many things in our homes. We cherish our possessions and move them from shelf to shelf. There is an estimate showing that a quarter of Americans with two-car garages don’t use them for their cars, but as storage for family stuff.

Downsizing your family belongings can be a time-consuming process. And it will drain you emotionally and physically if not done without a good plan. If you’ve been living in your home for decades, it will take hours to go through everything you have accumulated.

First, you need to decide what is important and what you absolutely need to keep. Then pick what you want to sell, give away, or toss.

Here are a few ideas on how to purge closets and rooms while downsizing your home:

Sort everything out by categories rather than by rooms. Start with larger items like furniture and then make your way down to clothes, books, documents, and finishes with sentimental items like photos and kid’s artwork.
Scan all papers and legal documents. You can simply scan most of your legal documents to the computer. Then you can upload a file to the cloud using service like DropBox or save it to an external hard drive. But please remember to keep a hard copy of all documents like passports, birth certificates, marriage certificates, estate wills and trusts, and property deeds.
Scan and upload favorite family photos or your children’s artwork to your computer. It’s very convenient if you don’t want to take old boxes filled with precious memories to your new home.
Have a garage or yard sale for items in good condition. Post flyers in your neighborhood and invite family and friends to come or spread the word. Selling furniture or home goods in good condition will help to downsize and get extra cash to pay for your moving expenses.
Sell items on craigslist or E-bay. Craigslist is very convenient for bulky or heavy objects you don’t want to take with you. Take a few minutes to look on E-bay and Craigslist websites and see what others are charging for the same piece. Then take good photos of the items you want to sell and post them with a detailed description and estimated price.
Offer to give away furniture or home goods to your kids, friends, family members, and even your neighbors.
Bring items you cannot sell to a donation center like Goodwill or Thrift store. Don’t throw things in the trash. When possible, try to find them a new home. Donations of new and reusable items can be sold at reduced prices or help to fund free educational programs for low-income communities.

Decide if you want to rent or buy in retirement.

small houses on hilltop - 5 tips on downsizing for retirement

There are pros and cons to both renting and buying for retirement. I know that most people prefer to live in their own homes because of feeling safe and independent. However, there are still many good reasons for renting in retirement.

When you’re getting closer to retirement you no longer want the hassles of maintaining a large home. You don’t need to live in that 2,500 square feet house with a big yard if it’s just two of you. You are tired of mowing the lawn, raking leaves, or fixing faucets and lights.

You need less space and you want someone else to take care of the place. That’s why becoming a renter might be your option. You would like to have a janitor who would fix a leak in your bathroom and someone else would cut the grass and water the flower beds.

As a renter, you would have more free time and less maintenance. Your time will be spent on playing golf, visiting your kids and grandkids, going to an art gallery, or traveling the world and explore new places. And it is easy to pack up and move somewhere else if you want to travel or become a snowbird. You don’t have to worry about renting out or selling your home.

Living in a small space.

a woman holding a flower on a window sill

Have you thought about if you going to be happy living in a small space? If you decide to downsize and move from 2,500-square-feet to 700-square-feet condo, you need to consider how it will affect your new lifestyle.

Do you like to entertain and throw big parties? Do you have a big family and expect many overnight guests? Will you need extra space for a hobby?

The rooms will be smaller in your new home. And you might feel it difficult to visualize the new layout of your furniture, sports equipment, and other belongings in those rooms. In this situation, you probably should consider selling most of your big furniture pieces including dining sets and travel lightweight to your new home.

Moving out of your home to a new place could be incredibly stressful. You have to take all your possessions, memories and the lifestyle you’ve created over many years and turn it upside down. For most of us, it’s comforting to retire at home. For others, it’s a new way to explore the world.

Putting It All Together

Retirement should be an exciting stage of our lives. And ideally, it should be all about crossing items off our bucket list. But if we stay in that big house after the kids moved out, we will spend a lot of time maintaining it. Downsizing and moving to a smaller place can simplify our life. It will give us more time to hang out with grand kids, time to travel and see the world, or just do what we like to do, but never got to it.

What are your thoughts on downsizing for retirement? Share your ideas with us in the comments below.

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Rent or Buy in Retirement?

by Maggie 2 Comments

water view landscape with houses and boats - retirement

Housing costs will be one of the major living expenses in retirement.

Many people in their 50’s and 60’s think about downsizing and if they want to rent or own in retirement. To rent or buy is always a tough decision. Making that decision before retirement can be even more challenging.

You should figure out your cost of living in retirement, the potential house prices, the cost of home maintenance, property taxes and insurance, and then compare it with rent prices in the same community.

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 want to sell the house, cash out and spend money on travel.

How to figure out if you are better off renting or buying? Here are some key factors to help you with rent or buy decision.

Where do you want to live in retirement?

The good thing about retirement that finally you can live anywhere you want. It’s nice to know that you no longer need to live closer to your work or where your kids go to school. Instead, you can relocate to a place with a better climate, lower cost of living or just a place you were dreaming about.

Did you think about where you want to live in retirement?

Are you planning to relocate to a different city or state?
Do you want to live closer to your kids, grandkids or friends?
Or maybe you want to move abroad and live there for the next 5 or 10 years?

I have a long list of places where I want to live in retirement. But I’ll be honest with you, living closer to my daughter will be one of the biggest reasons why I might choose to make a move in retirement.

What is your lifestyle in retirement?

water pool next to Mediterranean villa - lifestyle in retirement

What do you want to do when you stop working? What kind of lifestyle do you want to have? What kind of activities do you want to be involved in?

Whether you realize it or not, you probably already have different ideas or dreams in your head. So, take a piece of paper and write down the list of your ideas. And don’t forget to discuss it with your partner to see if it will work for both of you.

Here are some ideas for your list and questions to answer:

Do you have any hobbies?
Do you like gardening? Do you like to read?
Do you like traveling?
What would be your daily routine when you stop working?
Are you planning on working part-time?
Are you healthy and active? What are you doing to stay healthy?

Where you’ll live and how you want to live in retirement will be one of the most important decisions you have to make. This decision will affect how much money you’ll spend on housing and how much you’ll have left to enjoy life. Compare and discuss with your partner the options of where and how you want to live in retirement.

If you’re in your 50’s or 60’s and working you still have time to decide. Moving can be expensive in terms of money and time spent. Therefore, you don’t want to make a decision that you’ll regret in a few years.

What are the pros and cons of owning in retirement?

table with smart phone, coffe cup and glass of water - discussion

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

Pros of home-ownership

Emotionally attached. Home-ownership is special. We are emotionally connected to our home which means downsizing and selling a home will be painful.

Sense of stability. Home-ownership 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. Although, you don’t need to worry about a landlord bumping up the rent or start major renovation and ask you to move out.

Fixed mortgage payments. I know that many of us worry about mortgage payment and how to afford it in retirement. But if your mortgage is paid in full, you’ll only need to pay property taxes and insurance. Even you still have to make mortgage payments in retirement, it comes as a fixed payment.

Home equity and tax benefits. For me, there is another important advantage of home-ownership – building equity. I like to know that with every mortgage payment we accumulate more equity. We can take a home equity loan, line of credit or even a reverse mortgage if we need it.

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 do any kind of improvements or renovations without asking landlord permission. The same comes with pets. There are different kinds of policies and restrictions on what kind of pets are allowed in rental buildings. When I was a landlord one of our tenants had a rabbit and they didn’t take good care of their pet. After tenants moved out, I had to renovate the entire apartment and repair the damage done by that pet.

Cons of home-ownership

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 down payment or paying full price in cash. Your money will be tied up in that home for a long time. It’s going to be harder to get a mortgage when you retire because you don’t have an income. So, if you consider buying a home, make sure to do that before you stop working.

Cost 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. Also, 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.

What are the pros and cons of renting in retirement?

a woman stretching in front of open window - rent or buy 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.

Pros of renting

Renting is cheaper than owning. In some places renting makes sense if rent is cheaper than your mortgage. When we retire Roman and I want to move closer to the city. So far, our mortgage is $2,100 a month. There are several newly built apartment buildings in Cambridge, MA. When I checked out the prices, I found out that to rent a one-bedroom apartment would cost $2,500 a month or higher. Therefore, in that part of the city, renting is not cheaper than owning for us.

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 to invest your retirement funds and let 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.

No yard work or maintenance. When you became a tenant, you hardly have 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 don’t need to worry about the upkeep of the rental building or any repair costs. You can spend time and money on your favorite hobbies and activities.

Flexibility – I like the idea that I can lock the door and go away. I don’t need to worry about who would collect leaves, trim bushes or clean gutters. And if I want to relocate to another place it is faster to end when I’m a tenant and not an owner.

Cons of renting

Increase in rent. Usually, rents go up every year. When you own a home, your mortgage is a fixed payment and you could only expect an increase in taxes and insurance. With rent, you could expect a 3 to 10 percent increase every year. Also, with every payment, you don’t build any equity. Besides, when the real estate market is booming and prices are going up, you don’t get any appreciation. Your landlord builds equity and gets all appreciation from the rising real estate prices.

No feeling of security. I know that dealing with a landlord is not always easy. I had been a tenant and a landlord myself. 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.

Putting it all together

My husband Roman and I dream of traveling around the world when we retire. We want to explore the world living off our retirement money for 5 or 7 years. While we plan on buying a home, we consider renting a place as a home-base while we travel.

Short-term renting will fit our lifestyle. We won’t worry about leaving our rental apartment for several months as we would be if we owned the place. I will have more peace in mind locking up and leaving as a tenant than as an owner.

There are lots of options to consider. But the key is to decide what you would like to do. And then to have enough money to live your life the way you want it.

Have you thought about renting or buying in retirement? Share your ideas with us in comments.

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Coronavirus, Retirement Planning, and More

by Maggie 6 Comments

The world has changed. A couple of months ago nobody heard about Coronavirus. It was an unknown disease with symptoms of flu spreading and killing people fast. A couple of months ago, we have heard about Coronavirus outbreak in distant places, but today, it came to our doorsteps.

We’re all got affected by the crisis caused by Coronavirus (COVID-19) pandemic. Schools and universities are closed, major concerts and sporting events are canceled. There are hardly any people walking along the quiet streets. With travel ban restrictions, the whole travel industry is almost shut down. It’s hard to predict what will happen next week or next month.

We all have fears. We don’t know what will happen next. But we can prepare and become more resilient to our worries and anxiety. Each crisis feels like the end of the world. It’s hard not to fall victim to the terrifying news.

Like most people, I have more questions than answers in my head.

What this new disease means for my finances.
Should I sell all my assets?
What effect will this have on my future retirement?
When is it going to be over?

I try to stay calm and don’t make any foolish financial moves. I believe that despite a terrifying global crisis, the world will go on, and the stock market will recover to reach new highs in the future.

How Coronavirus pandemic will impact our personal finance and retirement planning?

The virus has a major effect on our wallets. The stock market is down, and many people are afraid to look at their retirement portfolios. Honestly, I am one of them. A week ago, I checked our portfolio and have learned that we lost several thousand dollars. I have made some quick adjustments and placed tighter trailing stops to several stocks I am still holding in our portfolios. But a week later, I have no stomach to look at it again.

Market bottom: Getting closer? by Fidelity Investments

Have emergency savings and keep extra money in cash.

We all watch how the stock market continued to crash. At this moment the market reaction to the coronavirus is like a dotcom crash, 9/11 or a financial crisis of 2008. The past market downturns always taught us a good lesson of having cash reserves.

Cash is King! We have all heard that statement, and it is true. If you’re close to retirement, you should have a chunk of your savings in cash. You should have enough cash to cover your living expenses for one or two years, so you can ride out market downturns. You don’t want to start depleting your retirement accounts at the wrong time.

Furthermore, it’s important to have emergency savings for anything unplanned like home and car repairs, unexpected medical bill or an emergency trip to family or a friend.

The financial experts recommend having 3 to 6 months’ worth of your living expenses while you’re working. When you retire and living of the fixed income, it’s wise to have up to 12 months saved in your emergency fund.

Re-evaluate retirement plans and time of your retirement.

The virus has a major effect on our lives. During this pandemic we have to practice social distancing, minimize social interaction and stop most of our activities. But we need to stay positive and focus on the future.

Unfortunately, the recent market crash changed many baby boomer’s retirement plans. If you were planning to retire this year or even next year, you may need to change this decision and give your portfolio extra time to recover.

Even the stock market appears to be in a bad shape, this is not the first time it’s facing the global crisis. The good news is that the market has a long history of recovering from declines and crashes. Therefore, don’t drive yourself crazy checking your 401(k), IRA or Roth balance every day. Instead, keep working and funding your retirement accounts.

Right now, it is a good time to invest in low prices. If you stick with your regular retirement plan contributions, there is a good chance you’ll be better off when this crisis is over.

Stay as flexible as possible. If you are close to full retirement age and planning to retire this year, you may need to re-evaluate the time of your retirement. Delaying retirement and claim of your Social Security for a year or two will help to boost the benefit. After all, you will lock in a higher Social Security paycheck for life.

Don’t sell your investments.

There is a lot of uncertainty and terrifying news in the world today. It’s a difficult time for all baby boomers. You could be in a very stressful situation if you’re getting closer to retirement or mapping out your retirement planning.

Therefore, the best thing you can do is to stay calm and don’t panic. You’ll only lock in losses if you start selling your stocks or mutual funds while they’re down. It may be nerve-wracking to see money evaporating from your retirement portfolio.

But don’t make any rash decisions and sell your assets, because you’ll regret it later. Remember that these bad times shall pass, the stock market will recover, and you’ll be in a strong position to retire once it does.

If you want to know more about coronavirus and retirement planning head to an article by Forbes:

8 Ways Coronavirus Will Drastically Alter Boomer Retirements

What are some tips for working from home?

notepad, smart phone and a pen on the table

This is a new world for all of us and many people are required to work from home for the next several weeks.

Honestly, I don’t like to work from home for a long period of time. I cannot focus on my work and get sidetracked easily. Instead of working, I would start cooking or cleaning. I know that many people would agree with me because they have a hard time getting anything done as well.

I have a few tips on how to work from home:

Create a dedicated work area. Roman and I are both working from home and each of us has a dedicated work area. He works upstairs in his office and I work downstairs in mine. Not everyone has the ability to create two separate home offices. But you can try at least to create a work area. Having a dedicated work area will help you separate work and life and to stay focused and organized.

Have a daily work schedule. I am a big advocate for a daily work schedule. When working from home, I am up at 6 a.m. and start working as soon as I am done with taking a shower and a quick morning exercise. I use the same routine as I would be getting ready to go to the office. It helps me mentally get into the “work mood” each day. In addition to that, you can set up a starting and ending time, lunch break time, or even time for your quick walk around the neighborhood.

Don’t watch TV and cut out social media. While working from home, you have to be efficient with time. During the day it’s so easy to get distracted with TV news or Netflix movies and then trying to catch up with work at night. While social media and TV is great, but you have to be careful and don’t let it impact your work in a negative way.

How to control fears and anxiety?

These days, it can feel that the world is full of nothing but bad news. We’re in the midst of Coronavirus pandemic and for many people, the uncertainty is the hardest thing to handle. Every day when I open my laptop or turn on the TV to watch the news, my heart gets filled with fear of unknown. However, there are many ways to manage your anxieties.

Stay informed, but don’t get obsessed with the news. Experts recommend setting a limit on how much time you spend consuming information each day. Constant monitoring of news and social media can fuel your anxiety. It’s better to step away from the following media if you start feeling overwhelmed. I should stick to these rules and reduce my exposure to any news. It will help me to stay calm and positive about the future.

Focus on what you can control and leave what you can’t. We live in a time of global crisis caused by the Coronavirus and there are many things outside of our control. We need to shift our focus on what we can control. We can’t control how fast the Coronavirus is spreading through the whole country, but we can take steps to reduce our personal risk to get infected:

Wash your hands frequently with soap and water or use a hand sanitizer that contains at least 60% alcohol.
Avoid touching your face and try to wash your face frequently.
Stay home as much as possible.
Work from home if you can, avoid crowds and gatherings of 10 or more people.
Avoid all non-essential shopping and travel.

Take care of your body and spirit. We all know that staying active helps to relieve stress and release anxiety. While the gyms are closed, you can still walk, hike or cycle. If you stuck at home, there are many things you can do even without equipment, such as yoga and exercise. Look online for exercise videos so you can follow and practice.

Get out in nature, enjoy the sunshine and fresh air. Even a walk around your neighborhood can make you feel better and improve your mood. Just be sure to avoid crowds and keep your distance from other people.

Eat healthy food. Coronavirus pandemic is affecting every aspect of our lives. Eating more meals at home is a new routine for many families. Healthy meals should include a big portion of fresh fruits, vegetables, and whole grain. Meat portions should be smaller.

When you stock up your pantry or a freezer go easy on the frozen dinners because most are high in sodium, fat, and calories. Limit purchases of chips, cookies, sodas and ice cream. They are high in empty calories.

I like to cook. Most of our meals are homemade from fresh ingredients. We stocked up a bit to prepare for any supermarkets supply interruptions caused by the Coronavirus. Otherwise, our grocery shopping was normal in the past few weeks, besides the lack of toilet paper and paper towels.

beets salad-healthy food-retirement — Russian-style dish called “herring under a coat” It has layers of chopped herring, boiled potatoes, carrots, red onion, apple and topped with lots of beets and mayo

Perfectly cooked honey-glazed pork ribs with brussels sprout and green apple salad

How our travel plans got affected by Coronavirus.

The travel and leisure industry got affected the most by Coronavirus pandemic. We were planning to go on the Greek Islands cruise at the beginning of May. We booked our plane tickets, three-nights in charming hotel in Athens and paid a cruise deposit to Celestyal Cruises. A few weeks ago, we had to call and cancel our cruise reservation before the company charge us a full amount.

Right now, we are in the process of trying to get a refund from Lufthansa airline. Even we bought travel insurance, it’s not that easy to get a full refund by canceling the trip. Most of our travel expenses were easy to cancel with or without penalty. So far, I hope that we can still go on vacation this year when the Coronavirus will be more contained.

Final Thoughts on Coronavirus

Coronavirus has changed our life. It has changed how we live and work. Schools and universities are closed, big events canceled, and many people are working from home. Each of us are jugging a different set of challenges. It’s hard to deal with these sudden and dramatic changes which affected the whole world. Many countries are facing huge economic fallout caused by COVID-19.

In times like this, it’s important to take a deep breath, and not to dwell on the bad news. So, let’s not be hard on ourselves or one another. Let’s rise to the challenge together, with compassion and resilience. I do believe that eventually the Coronavirus will be contained. The economy and stock market will recover as it has many times before. Our life will go back to normal as it has many times before.

Share your thoughts with us in the comments.

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