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Money Management

Should I Pay Off a Mortgage Before Retirement?

by Maggie 2 Comments

woman holding for sale sign - pay off a mortgage before retirement

For many of us, the mortgage debt is the largest in our budgets. That is why entering retirement debt-free seems ideal for many people.

Getting rid of a big debt could save you thousands of dollars in interest and free up money you can add to your retirement savings or just reduce your expenses in retirement.

It is my dream to pay off our mortgage before we retire. But I do not think it is possible. And I am not alone. According to stats, more and more people retire owing money on their homes. The Federal Reserve’s Survey of Consumer Finances showed that 37.6% of households of people aged 65 to 74 had a mortgage in 2019.

We all know that it can take decades to pay off your mortgage. But does it always make sense to pay off a mortgage before you retire?

Reasons to consider paying off your mortgage before retirement.

There are many reasons to consider when deciding should I pay off my mortgage before retirement or not:

  • You may be able to retire sooner.
  • You will have one less bill to pay each month in retirement.
  • It will provide you with more income in retirement.
  • Paying off a mortgage before retirement can reduce stress.

Also, it makes sense to pay off a mortgage before retirement:

  • If the house is worth more than the mortgage balance.
  • If the interest rate on your mortgage is higher than the rate of return on your investments.

Here is a related post you might want to read:

  • How to Use a Home Equity in Retirement

Benefits of paying off your mortgage before retirement.

Most people would be better off not having a mortgage in retirement. Getting into retirement with an unpaid mortgage will put a burden on your lifestyle.

When you are working, you have years of earned income to pay off a mortgage. But once you retire, you will be living on a fixed income. And when you start living on a fixed income, it is hard to pay off debt if you need to pull big chunks of money from your savings. Although, large withdrawals from retirement funds could push you into a higher tax bracket.

Frankly, it will make your retirement life a lot harder if you must continue to pay a mortgage when you are not working. In addition to that, you still have to spend money on property taxes, homeowner’s insurance, maintenance, and repairs.

The simple fact that you have lower housing costs means you will need less income to cover this essential expense. Also, you will have more retirement income left for other retirement expenses.

Being debt-free gives you more freedom and money left in your pocket to enjoy your golden years than struggling to pay off the mortgage.

Roman and I refinanced our house many times. But even with a low-interest rate of 2.5 percent, the mortgage payments take the biggest chunk of our budget.

Here is a list of benefits of paying off your mortgage before you retire:

  • Give you peace of mind
  • Provide you a place to live without worrying about monthly payments
  • Reduce your retirement expenses
  • Saving you money on interest

How to pay off your mortgage before retirement:

Refinance to a shorter-term loan. One way to pay off your mortgage faster is to refinance to a shorter loan term. For example, you can apply for refinancing your mortgage from a 30-year to a 15-year loan. That can put you on the fast track to paying off your mortgage.

However, it is important to remember that a shorter-term loan means higher monthly payments. Make sure your budget can handle the higher payments each month.

Refinance to a lower interest rate. Another smart option to reduce your mortgage debt is refinance it at a lower rate. In 2020 Roman and I refinanced our mortgage with Ameri Save Mortgage Corporation at 2.5 percent. It helps us bring down our monthly payments and save up to $500 a month.

Make an extra payment each month or each quarter. Look at your mortgage balance and figure out how much extra you can put toward your mortgage each month. Those extra payments can reduce your principal balance significantly.

Making an extra payment 4 times in one year could remove 10 years from your payoff date.

Every dollar you pay above your regular monthly payment helps speed up your payoff date. It does not mean that you have to start doubling up your monthly payments. Simply adding an extra $100 a month to the principal can speed up your payoff date for 5 years.

Switch to bi-weekly payments. Also, instead of sticking with the traditional monthly payments, you can start making bi-weekly mortgage payments.

When you switch to a bi-weekly mortgage payments program, you split your payment in half and pay twice each month. There are 52 weeks in a year. If you switch to bi-weekly payments, you end up making 26 payments which are equal to 13 monthly mortgage payments – one extra payment yearly.

With this strategy, you will be able to knock off a few years of your mortgage balance and reduce the amount of interest you pay on the loan.

Put extra cash towards your mortgage. Whether it’s a bonus, tax refund, salary raise, or inheritance, put every dollar towards paying down your mortgage debt.

Reasons not to pay off your mortgage before you retire.

Rushing to pay off your mortgage before retirement may not be a good idea for many reasons:

  • Paying off your mortgage early could trigger a penalty
  • You may be better off investing the money
  • You may need to borrow against your home equity later
  • You will be paying off your mortgage with savings

Tax benefits. Your mortgage interest is tax-deductible.

If you are still working and in the 35% tax bracket, every dollar you pay in mortgage interest saves you 35 cents in federal income taxes. Also, you save money on state income taxes.

A mortgage is a low-cost debt. A mortgage is one of the least expensive loans available.

If you have a credit card debt, it often comes with a higher interest rate than a mortgage. Do not rush to pay off a 2.5 or even 3.5% mortgage if you have credit card loans or other debt you are still paying off at 18 or 20% rates.

It is better to save for retirement than pay off a mortgage. As I mentioned above, mortgages are often the cheapest money you will ever be able to borrow.

Typically, mortgages have a lower rate and even fixed-rate, helping to ensure that borrowed money remains cheap for the next 15 or 30 years. That means people have the opportunity to put funds elsewhere, such as in savings and retirement accounts.

Thanks to compound interest, a dollar you save and invest today has more value than a dollar you invest 5 or 10 years from now. That is because your invested money will be earning interest on top of interest for a long time. For that reason, it makes more sense to start saving for retirement when you are younger rather than focus on paying off your mortgage.

What to do if you cannot pay off your mortgage before retirement?

Unfortunately, not everyone can pay off a mortgage. Retiring with mortgage debt is becoming a more common scenario.

person holding a house keys - benefits of paying off mortgage before retirement

To pay off a mortgage before retirement might not be realistic for everyone. If you are like me and worry about how to afford mortgage payments in retirement, there are several options to consider:

Downsizing. Your home is one of the biggest investments.

If you have been living there for a long time, your home went up in price and accumulated a lot of equity. One of the ways to get rid of mortgage payments and home maintenance bills is to sell the house.

If you cannot afford to pay off your mortgage, you might consider selling your home. You can sell the big house and trade it down for a smaller house or a condo. Or you can move to a cheaper area and pay cash for your new house.

Related Post: 5 Tips on How to Downsize for Retirement

Invest equity. Do you want to deal with the hassle of homeownership in retirement?

Maybe you rather spend time traveling and visiting family and friends. In this case, your option will be to sell your home, invest cash, and enjoy living on rent and mortgage-free.

Investing the cash from home sales will bring you additional income in retirement. If you let it grow for 10 years in your investment portfolio, and it might be enough to pay cash for your next house or a condo if you are tired of renting.

But many people would prefer to stay in their homes and retire in place. They want to remain in their neighborhood for life.

In this case, homeownership might provide several options to fund your retirement without the risk of stock market investments.

In this case, consider a reverse mortgage. Those people who have big equity built up in their homes could apply for a reverse mortgage. This type of loan can be also used to pay off the existing mortgage.

A reverse mortgage is also known as a home equity conversation mortgage (HECM). It provides income to retirees and does not require monthly payments. You still have to pay taxes and home insurance, and you will be responsible for maintenance.

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

A reverse mortgage can be flexible, and you can take HECM as a line of credit (HELOC), lump sum, or annuity.

One option is to use HECM for your medical or long-term care expenses late in life when you run out of money.

Another option is to set up an annuity to increase Social Security and any other retirement income you will receive.

However, reverse mortgages can be complicated. There are many terms and conditions, and it is a relatively expensive way to borrow money. So, make sure to do your research to understand all the pros and cons, and talk to a loan specialist.

Your Guide to Reverse Mortgages

Should you pay off your mortgage before retirement if you could? Share your thoughts in the comments below.

If you enjoyed reading, share this post so that others can find it, too!

Filed Under: Money Management, Retirement Expenses, Retirement Planning Tagged With: benefits of paying off mortgage before retirement, how to pay off mortgage before retirement, mortgage in retirement, pay off mortgage before retirement, retirement expenses

How to Cut Expenses Before You Retire

by Maggie Leave a Comment

woman with laptop - cut expenses before retirement

If you are near retirement age, these tips on how to cut expenses will help you save more and give you the freedom to retire sooner.

And if you are still working, you are in a great position today to improve your life in retirement because you still earn an income. Your remaining working years could be a great time to explore some smart options of cutting expenses before you stop working.

According to the Bureau of Labor Statistics, Americans aged 65 and older spend about $48,000 per year ($4,000 per month) on average.

In retirement, most of your money will be spent on 3 big categories – housing, transportation, and medical.

According to the Bureau of Labor Statistics Consumer Expenditure Survey, for adults aged 65 and older:

  • Housing represents 34% of spending
  • Transportation represents 16% of spending
  • Health care represents 13% of spending

1. Reduce housing cost.

I do not have to tell you that your housing costs eat up a big chunk of your money every month. Even in retirement, the cost of housing will be your biggest financial burden.

Bringing an unpaid mortgage with you into retirement will cause a lot of financial stress each month.

The cost of homeownership for the average American household is $13,153 annually without the cost of a mortgage.

Based on my own calculations, Roman and I spend $28,400 a year on mortgage, insurance, taxes, utilities, and maintenance. It takes 25 percent out of our annual budget without the cost of home improvements and major repairs.

According to statistics, the average retiree household spends around $17,472 per year ($1,456 per month) on housing expenses including mortgage, rent, property taxes, insurance, maintenance, and repairs.

Pay off your mortgage.

You will make your retirement life a lot harder if you must continue to pay a mortgage when you are not working. Plus, you still have to spend money on property taxes, homeowner’s insurance, maintenance, and repairs.

The simple fact that you have lower housing costs means you will need less income to cover this essential expense. In addition, you will have more retirement income left for other retirement expenses.

Retirees often have to withdraw money from retirement funds to cover their mortgage payments. Unfortunately, those withdrawals typically trigger more taxes.

Look at your mortgage balance and figure out how much extra you can put toward your mortgage each month. Those extra payments can reduce your principal balance significantly.

Also, instead of sticking with the traditional monthly payments, you can start making bi-weekly mortgage payments.

Refinance your mortgage.

Another smart option to reduce your mortgage debt is to refinance it at a lower rate.

In 2020 Roman and I refinanced our mortgage with AmeriSave Mortgage Corporation at 2.5 percent. It helps us bring down our monthly payments and save up to $500 a month.

Unfortunately, not everyone can pay off a mortgage. Retiring with mortgage debt is becoming a more common scenario.

If you cannot afford to pay off your mortgage, you might consider selling your home.

Downsize your home.

Are you an empty nester? Then it might be the perfect time to reconsider your living condition.

The smart choice would be to sell your home and move to a smaller home or condo. By reducing your housing costs today, you can get extra cash into your pocket before you retire.

Look at the advantages of a smaller home or condo:

  • A smaller mortgage
  • Lower property taxes
  • Reduced homeowner’s insurance premiums
  • Fewer maintenance costs
  • Less yard work, especially if you get a condo

To help you get started, here are a few useful articles you may want to read:

  • 5 Tips on How to Downsize for Retirement
  • Rent or Buy in Retirement

2. Reduce transportation cost.

According to statistics, the average retiree household spends around $7,492 a year ($624 a month) on transportation.

The cost of transportation is likely to drop when you stop working. While you will not spend money on commuting anymore, not all your transportation expenses will disappear.

We all know that cars are expensive. Not only you have to pay for gas, maintenance, and repairs, but you also need to insure them. With inflation and gas prices going up every year it will make your life on a fixed income more difficult.

If you need a car, your goal should be to spend the least amount of money on a reliable car.

Here are a few options of how to reduce the costs of your vehicles before you retire:

Downsize your vehicles.

One of the best ways to reduce the cost of transportation is to downsize your vehicles.

If a large chunk of your income goes into maintaining several cars or driving luxury cars, I would suggest downsizing or choosing a different car. Going from two cars to one or downgrading to a less expensive car can help you significantly reduce the costs of gas, auto insurance, and maintenance.

According to LendingTree, the cost of a new car, including additional costs like fuel, insurance, and tires is between $23,903 (a small car) to $57,267 (a full-size car) per year.

However, if you have already paid off your car, it makes more sense to keep it as long as you can. That way, you do not need to worry about monthly car payments. Instead, you can take that money and use it to pay down any other debts or save more for retirement.

Buy a used car.

Many people choose to lease their cars because they want to have a new car every few years. Leasing works better if you are on the road for business and can deduct the lease payments.

But if you are near retirement, buying a good used car rather than a new one for the image will help you afford retirement sooner.

Most of the vehicles lose about half of their value by the time they are five years old. So, if you decide to buy a used car, a three-year-old car will cost you less in upfront expenses and maintenance.

Between paying on average $40,000 for a new car, you can save a lot of money by spending on a used car only $22,351(at the end of January 2021).

A useful post from LendingTree: Should I Buy a Used or New Car?

Use public transportation.

In case you are planning to move from the suburbs to an urban area, you should sell your cars and take advantage of public transportation.

In this scenario, you do not need to worry about the costs of your vehicles at all. Just buy a monthly public transportation pass. And when you want to go on a road trip, simply rent a car.

Use car-sharing services.

Most urban cities also have car-sharing services that give you easy and affordable access to a car for temporary needs.

Also, using services like Uber or Lyft can help you save money without the regular monthly costs associated with owning or leasing a car. With the gas prices are going up every year, you do not need to worry about that additional expense.

3. Get rid of a high-interest debt.

High-interest credit card debt can be one of the biggest burdens on your financial life in retirement.

Most of the credit cards come with high-interest rates – 18 to 20 percent.

credit card - cut credit card debt before retirement

If you carry a big balance on your credit cards, you will be stuck paying that required minimum every time your credit card bills come due.

Keep in mind, that if you bring a mortgage, high-rate credit card debt, and maybe a car loan into retirement, you will put a lot of pressure on your limited finances.

There are two most popular debt payment strategies:

  • The snowball strategy
  • The avalanche strategy

The snowball strategy – you are paying off debt from smallest balance to largest.

First, you focus on paying off the credit card with the smallest balance. Then you move on your next smallest credit card bill until all credit card debt is paid off in full.

The avalanche strategy – you organize your payments by interest rate – from high to low.

First, you pay off debt with the highest interest rate as quickly as possible (even with extra money). Then you move on to the card with the next highest interest rate.

I recommend focusing on your highest-interest debt first because the longer it takes you to pay it off, the more money you will pay towards interest.

And if you can help it, do not add any more debt to the pile while paying off old debts.

A helpful post:

  • How to Pay Off Debts Before Retirement

4. Review your insurance coverage.

Getting closer to retirement might be a good time to review how much you spend on insurance and how to cut that expense.

Life Insurance

First, you might look at your life insurance and decide if you still need it.

The main purpose of life insurance is to replace lost income. If your kids are grown and you no longer have any dependents who will need financial help after you die, it might be wise to drop policies. Paid-up policies can be sold.

If you have a term life policy, make sure you understand whether the payout at your death is worth the cost of the premium you are paying today.

Auto and homeowners’ Insurance

You might also look at your deductibles for your vehicles and homeowners’ insurance policies.

When you are still working, it makes sense to set your deductibles low. But low deductibles increase the amount you pay in insurance premiums. So, when you raise your deductibles, you will pay less for your vehicles and homeowners insurance premiums.

Once you retire, you might want to pay less for your insurance policies so you will have more money to cover your daily expenses.

Healthcare

In retirement many people will spend most of their money on health insurance, medical services, and drugs, as they age.

I my articles I often write about the cost of medical expenses in retirement. Because I want to remind my readers that healthcare is going to be their second biggest expense after housing, and they need to plan for it.

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple may need around $300,000 saved (after tax) to cover healthcare costs in retirement.

Here is a helpful article you might want to read:

  • How to Plan for Rising Healthcare Costs

Most people will be eligible for Medicare at age 65. But if you plan to retire before age 65, you will need to find a separate plan to cover your medical expenses.

Individual health insurance is expensive and could cost more than $1,000 a month. Make sure to shop around for the best prices.

Even being eligible for Medicare brings its own set of challenges because it does not cover all medical expenses.

Medicare is not free. It does not cover premiums, deductibles, co-pays for doctor visits, dental and vision care, long-term care, personal care, and other expenses.

Long-term care insurance is the most recommended way of planning for future expenses.

Long-term care insurance will help you not be a financial burden on your family if that time comes. It will cover nursing homes, assisted living facilities, and in-home care.

After all, you do not want to leave your husband or wife with nothing because the entire nest egg was spent on taking care of you.

Final Thoughts

If you do not know what your expenses look like in retirement, it will be difficult to predict how much money you need to save for the future.

But if you can get a sense of what to expect, it will be relatively easy to cut your expenses in these categories before you retire.

Have you had more ideas on how to cut expenses before retirement?

If you enjoyed reading, share this post so that others can find it, too!

Filed Under: Money Management, Retirement Expenses, Retirement Planning Tagged With: healthcare costs in retirement, reduce retirement expenses, retirement, retirement budget

5 Best Ways to Withdraw Money from Retirement Savings

by Maggie Leave a Comment

woman with laptop - best ways to withdraw from retirement savings

There is a lot of information on how to save for retirement but not much on how to withdraw money from your savings when you retire.

Your retirement savings and Social Security (and pension if you are lucky) are all the money you have in retirement. And these savings need to last and support your lifestyle during the next 20 or 30 years.

As a pre-retiree, I already know that I cannot withdraw whatever I want from my retirement funds and expect my savings to last for a long time. Life does not work that way. Without a withdrawal plan, Roman and I will run out of money fast, and then it will be too late to go back to work.

Retirement Savings Withdrawal Rules:

In general, retirement planning consists of two phases – the accumulation phase and the withdrawal phase. After decades of working hard and saving for retirement, you need to shift gears and learn how to spend what you have saved.

Traditionally people work and save 15 percent into their retirement funds and then retire on average at age 65 or older. When you retire, your earned income will disappear, and you will need to pay for the cost of living out of your savings and Social Security.

In addition to that, you need to figure out how to convert your retirement savings into a reliable stream of income that can support you through your 90s.

Unfortunately, you cannot keep your money in retirement accounts forever.

The federal government is going to force you to start taking money out at age 72 if you are not working anymore. If you are still working at age 72, you have to start taking money from your IRA and old 401(k) from your previous job. But you can delay taking withdrawals (RMDs) from your current 401(k) until you stop working.

A general rule to remember – keep the money in your 401(k) or IRA until you reach age 59 ½. If you withdraw any money before that age, you will be hit with a 10 percent penalty fee on top of the regular income tax.

In this post, I want to show you the 5 best ways to withdraw from your retirement savings so your money will last for a long time.

1. Follow the required minimum distribution (RMD) rules.

The IRS requires us to start taking a minimum distribution (RMD) from tax-deferred accounts when we turn 72 years old unless we are still working.

If you do not make it on time and fail to withdraw the required amount each year, you will owe IRS a large penalty fee. In addition to the penalty fee, you will still need to withdraw the required amount of money, and pay income tax on it.

The withdrawal amount depends on your age, life expectancy (the longer your life expectancy is, the less money you must take out), and your account balance.

There are two types of retirement accounts:

  • Tax-deferred – 401(k), IRA, Roth 401(k)
  • Tax-free – Roth IRA

The minute you start taking money out of 401(k) or IRA, you will have to pay taxes on your withdrawals. If you are in a high tax bracket, you will owe a good chunk of money to IRS. Although, if you are wealthy enough and do not need money from your retirement accounts, you still must withdraw them to follow the rules of RMD.

Keep in mind that many financial firms can help you calculate an RMD.

2. Minimize mandatory distributions.

One of the best ways to withdraw money from retirement accounts and lower your taxes is to minimize mandatory RMDs. Because when you start taking money out of tax-deferred accounts, you will face an increase in your taxes.

Remember – that was the deal you had signed up when you got a tax break on the money saved in a traditional 401(k) or IRA. It was deducted from your taxable income, and retirement is the time to pay it back.

In retirement, you would owe income tax on withdrawals.

need help poster on taxes-taxes on withdrawals in retirement

That means, preserving your tax-deferred accounts until an RMD kicks in is not a great idea.

Someone who is 70 years old will have an RMD of approximately 3.5 percent of the account value, but by the age of 75, an RMD will be 4.5 percent. And at the age of 80, you will require to withdraw at least 6 percent. These numbers are just an example to show the more money you have the more you have to withdraw.

Keep in mind that an RMD will be much higher to withdraw as you grow older unless you start withdrawing money when you retire. And as I mentioned above you might be pushed into a higher tax bracket.

The main thing to remember is that every year you will need to take an RMD from your tax-deferred accounts if you do not want to owe IRS a large penalty fee.

3. Consider a Roth IRA conversion.

One of the best ways to reduce your taxes in retirement is to convert some of your traditional 401(k) or IRA into Roth IRA money.

A Roth IRA conversation is a process of switching between retirement accounts.

You take money from a 401(k) tax-deferred account and roll it into Roth IRA. The Roth account is funded with after-tax money, so when you go with the conversion it will trigger the tax bill.

But you will pay taxes only on the converted money. Once you make the move, all the funds in the Roth account will grow tax-free.

The best part is that you are not required to take a minimum distribution on the Roth IRA money, so it will grow and accumulate longer.

So, the important thing to remember is that money in a Roth IRA account grows tax-free and can be withdrawn tax-free.

However, you will need to pay taxes on any amount converted from 401(k) or IRA to a Roth account.

Even though you must take money out and pay taxes on tax-deferred accounts, your Roth IRA money will stay intact, grow, and accumulate with years. It could be used as an emergency fund or passed on to your heirs.

As a financial goal, I plan to move 50 percent of all our tax-deferred accounts to a Roth IRA account before we turn 72. I am planning to do it gradually so it will help control RMD withdrawals and reduce our taxes in retirement. Besides, if we want to delay the start of our Social Security, we will have several years of low income, which can be a good time to complete the Roth IRA conversion.

4. Withdraw from accounts in the right order – taxable vs. tax-deferred.

The saying “it is not what you earn, but what you keep” is true when it comes to withdrawing money from your various accounts.

In retirement, we need to be smart about taking money out of our retirement funds, otherwise, the big chunk of it might be eaten by taxes.

Here is a helpful article from Fidelity Investments you might want to read:

  • Tax-Savvy Withdrawals in Retirement

As a general rule, it is better to sell investments held in taxable (investment) accounts first instead of taking money out of tax-deferred accounts.

The main reason is that the withdrawals from the traditional 401(k) and IRA accounts are taxed as ordinary income. And typically, ordinary income is taxed at a higher rate than the long-term capital gains from the taxable (investment) accounts.

On another hand, if you withdraw money from your taxable accounts before tax-deferred, it might increase an RMD rate and that reduces your tax efficiency.

This is one of the best ways to withdraw money for tax efficiency:

  • First – pull money from your taxable (investment) accounts
  • Second – withdraw money from your tax-deferred accounts – IRA and 401(k)
  • Lastly – take money out of tax-free accounts – Roth IRA

5. Figure out how to take distributions from multiple accounts.

Over their lifetime, many people accumulated multiple retirement accounts – traditional 401(k)s, IRAs, and Roth IRAs. Before an RMD rule kicks in, you need to figure out how much and in what order to withdraw money from all these retirement accounts.

The problem is you cannot tap into all your retirement accounts at once.

For example, if you own a few traditional 401(k) accounts you have to withdraw from each of them individually. The same rules apply to IRA and Roth IRA accounts. That means that you cannot make withdrawals from an IRA account to meet your RMD requirements for a 401(k) account.

On another hand, you cannot combine all these accounts into a single account so it will be easier to control your money and withdrawals.

The best way is to consolidate your multiple IRAs into a single account.

However, you cannot combine 401(k) and IRA accounts into a single account, but you can roll over 401(k) into IRA.

If you are still working and have several 401(k) accounts from your previous jobs, you should be able to merge the old 401(k) into your current employer’s 401(k) plan. However, if you cannot combine old and new 401(k) plans, you can rollover old 401(k) accounts into an IRA account.

I am still a few years away from the RMD rules, but I have already begun thinking about merging all our retirement accounts into a single account.

Roman and I have multiple retirement accounts with different financial institutions:

(2) 401(k) accounts, (1) Roth 401(k), (3) Traditional IRAs, and (2) Roth IRAs.

Personally, I feel that calculating and taking money out for multiple RMDs sounds very complicated. That is why I am planning to consolidate all accounts under one roof with 401(k) and IRA rollovers which can make my life much easier to manage RMDs and to keep track of our investments and taxes.

Final Thoughts

There is so much information on how to save and invest for retirement. But when it comes to the withdrawal strategy things start looking complicated. There are many strategies, ideas, and rules to remember when you start planning for retirement.

With the knowledge of how to withdraw from retirement savings, you can minimize your taxes and keep your retirement funds working for you longer.

However, it is a complicated matter, and finding an account or a financial advisor who will help you navigate everything will be the best decision.

If you enjoyed reading this post, share it so that others can find it, too!

Filed Under: Money Management, Retirement Income Tagged With: money withdrawals in retirement, required minimum distributions, Roth IRA conersion, tax-savvy withdrawals in retirement

Enjoying Your Golden Years on a Fixed Income

by Maggie 4 Comments

a couple at table with coffee cups - enjoy golden years of a fixed income

Today, I have a great guest post to share from Joyce Wilson. Joyce is retired and wanted to offer her mini-guide of several tried-tested strategies on living life to the fullest during your golden years on a fixed income.

Seniors who manage to save enough for retirement are as rare as hen’s teeth. With the median retirement savings for workers pegged at just $97,000, an increasing number of seniors are working post-retirement age.

You need to save $1.04 million in 2021 to retire comfortably if you are wondering, according to Annuity.

If you have not saved enough, do not fret. There are countless seniors in the same boat as you.

Furthermore, many of them have managed to set up fulfilling, enjoyable lives for themselves, despite drawing a limited income every month.

As a matter of fact, studies suggest seniors are happier than expected.

And you can be the same way!

If you want to learn how to enjoy your golden years on a fixed income, here is a mini-guide of several tried-tested strategies from Joyce Wilson.

Know where your money is going.

It is basic but essential – you need to have a clear, big-picture view of your finances. Knowing exactly how much money you have coming in and going out prepares you mentally and emotionally for cutbacks. You will know what your necessary expenses are and what you cannot afford.

Moreover, the clarity makes it easier to plan for the future. If you do not enjoy tracking your money (who does?), you can automate the activity through a budgeting app.

The Best 8 Budget Apps for 2022

Reading bank statements will also work in a pinch.

Create a budget.

You need to limit your access to spending money. Otherwise, you are going to spend too much, too quickly. Essentially, budgeting – and self-discipline – is non-optional.

Give yourself a fixed paycheck to live from each month, maybe by setting up a bi-monthly deposit to your checking account. Set aside money for necessary expenses and emergencies. Of course, do not go overboard with limits – give yourself some “flex” money for other expenses. As with all things in life, aim for a sustainable balance. 

Be savvy about debt. 

Debt is always a slippery slope – but especially so when you are a retiree. The interest will eat massive chunks of your spending money, making budgeting impossible and draining your retirement fund dry.

When possible, avoid debt – throw your credit cards away and save until you can afford two of whatever you are buying. If you are forced to borrow, prioritize paying the amount back quickly. Also, ask for assistance from a local agency for seniors, and consolidate the debt (for a lower interest). 

Invest in your health.

Your health can be your biggest asset or greatest weakness. If you take care of your health, you won’t have to spend your money on doctor visits and hospital bills. Furthermore, good health will make you happy and make it easier for you to enjoy your life or work.

10 Healthy Habits for Seniors to Keep

It is never too late to work on your health. Go for long walks, take up an exercise routine, eat more greens, and do away with stress through activities like meditation.

Get creative with your meals.

Your meals do not have to be a large, ongoing expense. Get creative and plan them out to save money.

a bowl with veggies - eat healthy food in retirement

First, shop for generic brands instead of premium ones – there is little to no difference, as Foodtown can confirm.

Second, shop at the right time, in the right place. Go to a discount store at the end of the day, before the food is to be thrown out, for the best deals.

Third, make a list of your needs and stick to it when you go shopping.

Fourth, have filling meals using “stretcher” ingredients like pasta and potatoes. Also, try Asian recipes – they can be delicious and affordable at the same time.

Last, but not least, when eating out, go to places offering deals and discounts. 

Find part-time, low-stress work.

You may have to work to support yourself – but it does not have to be a difficult, stressful endeavor. Freelancing, for instance, is a wonderful, stress-free option. It gives you freedom and flexibility, not to mention can bring in some good money.

If you are starting up your own gig-based business, forming an LLC is a good idea.

It protects your personal assets from lawsuits and offers other advantages like tax benefits, less paperwork, and added flexibility. To save big lawyer fees, you could file the paperwork yourself or use a formation service. States have regulations around forming an LLC. Check the local rules before you continue.

Consider alternative living options like downsizing.

Depending on where you live, your living expenses will account for as much as a third (or more) of your monthly expenses. With some adjustments, you can take away from those costs. You could downsize, moving to a smaller place that requires less upkeep (and money) to maintain.

Downsizing is possible with a smaller house, condo, or even active living arrangement.

If you want to stay where you are, you could rent a room out to someone, if it is an option. Likely the best way to save is to rent a room, instead of an entire home.

Choose free or low-cost entertainment.

You do not necessarily have to spend money to entertain yourself.

There are countless free activities that are just as enjoyable as paid ones.

Some examples are reading a book, visiting a library, museum visits, community events, concerts and festivals, hobby groups, and volunteering activities. Technology – the internet, apps, and games – can be your best friend when it comes to entertainment. You can ask your grandkids for advice.

Buy second-hand.

Buying second-hand is good for your wallet (and the planet in general). If you look hard enough, you can find as-good-as-new items at rock-bottom prices. This includes clothes, furniture, appliances, gadgets, and more.

Websites like Poshmark, Geebo, Mercari, and Craigslist allow you to buy (and sell) second-hand.

You can also, of course, visit nearby flea markets, thrift stores, goodwill sites, and charity organizations. 

Final Thoughts

Age offers many advantages – like hindsight, experience, and an appreciation of the smaller things. Take advantage of your age to create and recreate your life as necessary.

Money is not everything, and your imagination can be your best friend.

Last, but not least, do not hesitate to ask for help – whether it is financial advice from a planner or monetary assistance from friends and family. You deserve it!

What are your ways to live on a fixed income? Share your ideas with us in comments!

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Filed Under: Budget, Debt, Money Management, Retirement Planning Tagged With: create retirement budget, health in retirement, part-time work in retirement, retirement living

11 Tips for Fall Financial Checklist

by Maggie 4 Comments

laptop on the bed - fall financial checklist

Time flies. The hot summer months are over and there are only a few months left in this year. For me, early autumn is the best time of the year. The changing of leaves, the colorful local markets, the apple picking, and the comfort food.

Also, fall is a perfect time to take an inventory of finances and retirement planning goals. After spending money on summer travels and activities it is good to see what lies ahead and prepare for the following months.

Having a fall financial checklist will help you review your retirement savings, prepare your home and car for winter, get your investment portfolio in shape, and make the most of your money from the holiday season to your financial decisions.

While there are many more financial tasks to tackle, this list of 11 tips is a great way to start the final months of this year.

Here is my fall financial checklist with 11 helpful tips to improve your finances and get your home ready for winter.

Finances

1. Bump up your savings – Fall is a perfect time to look at your savings and emergency fund. It is never a bad idea to save more. If you depleted your savings, now is a good time to think about how to save more. Even $100 extra dollars a month ($1,200 a year) can make a big impact.

2. Look at your emergency fund – A solid emergency fund is helpful when financial troubles come your way. Most financial planners recommend having three to six’s months’ worth of living expenses to be tucked away.

The past two years of a global pandemic were hard on most of us. And if you have depleted your emergency fund, make it a financial goal to re-build it by the end of the year. One of the best things you can do is to make sure you have an emergency fund.

3. Check remaining FSA money – If your flexible spending account will expire by the end of this year, make sure you use it. Also, check FSA policies on how much money you can carry over to next year.

4. Review your retirement savings plan – Saving money in retirement accounts such as 401(k), IRA, Roth 401(k), and Roth IRA is smart way to enjoy some tax advantages and save for retirement.

But do you know if you are on track to meet your financial goals? Look at your retirement savings and see what can be done to save more. If your employment status has changed from employed to self-employed do not forget to enroll in self-employed retirement accounts SEP-IRA and maximize your contributions if you can.

Also, if you have recently changed the employer, decide if you want to roll over any old 401(k) funds from a previous employer to a new one. Additionally, try to increase your annual contribution to retirement accounts. Even a one percent increase every year will help you save more by the time you are retired.

5. Review your investments – Look at your investment portfolio. Things change all the time in the finance world. And it was no different in the last 12 months when the stock market was shifting during the global pandemic.

It is important to look at your portfolio and review where your investments are. Hence, fall is the best time to look at your investment portfolio and evaluate it. If you are 5 to 7 years away from retirement, make sure that you are not carrying too much risk or wasting your money on investments that are not generating a decent rate of return.

Also, make sure that your current portfolio meets your investment goals. If the market caused a shift in your portfolio, it needs to be corrected to maintain the diversification you originally planned.

6. Look at your company work benefits – During the fall many companies (including mine) send out enrollment information for the coming year’s benefits. Most companies’ work benefits start on January 1. Make sure you take some time to go through your current documents and understand any changes.

I always check the changes for my company benefits like FSA, 401(k), Roth 401(k), and health insurance. Keep in mind that even though your benefit choices worked for you this year, it does not mean they will next year. You can increase your contributions to retirement accounts and increase or reduce FSA funds. Finally, do not forget to submit the paperwork for a company-sponsored gym membership if it expires by the end of the year.

Moreover, you have to make sure that you have signed up for the proper health insurance plan for you and your family. Your health may have changed over the last year or your company will be changing the health insurance providers. It is important to keep an eye on these changes because you do not want to miss out on valuable insurance benefits.

7. Look at your retirement goals – If you are close to retirement, fall is an ideal time to start planning how you and your spouse will time your retirement. You may be already discussing when you should start claiming your hard-earned Social Security Benefits, when and how to enroll in Medicare program, and if you need to buy long-term care or life insurance.

8. Budget for the holiday season – The holiday season can be expensive with Halloween, Thanksgiving, Christmas, and New Year holidays coming up. We are not surprised anymore that many stores started putting up their Christmas displays in October. That is why fall is a perfect time to start budgeting for holiday spending.

calendar - fall financial checklist

If you start early and prepare your holiday budget ahead of time, it will help you save a lot of money by controlling your spending. Make a list of all your projected holiday expenses and start saving towards your goal. How much do you plan on spending on costumes, gifts, travel, activities, and entertainment? Putting aside even $50 or $100 each week will help you prepare for holiday spending.

Additionally, keep an eye for online sales and specials so you can get your gifts at more affordable prices. And if you are a creative person, start working on DIY gifts.

Home

9. Prepare your home for winter – Fall is a perfect time to prepare your home for winter. You can cut down on future bills knowing that your home is warm and functional during the cold months.

Usually, I like to go through my to-do list for home maintenance:

  • Check the boiler and service it if needed.
  • Call the cleaning company and sweep the chimney if needed.
  • Check the thermostat and readjust the temperature.
  • Check windows for drafts and cracks and remove A/C units.
  • Check the doors for drafts.
  • Clean out gutters after all leaves have fallen.
  • Remove the outdoor hose and turn off the water supply.
  • Collect fallen leaves, trim overgrown bushes, and plants.

10. Clean up your closet – Fall is a lovely time of the year when we are transitioning from summer to winter and getting ready for short days and cold weather. Also, it is my favorite time of the year to go through my closets.

Typically, I like to pull out all my winter clothes, scarves, gloves, and coats and sort them out. It is easy to sell the items you no longer need or use on sites like Craigslist or eBay. But I prefer to donate my fall and winter clothes that I did not wear last year. Also, I look at my summer stash and decide if I will be wearing it next year. If not, I will donate or toss it. Going through my closets help to see my options for mixing and matching clothes I already have instead of spending money on shopping for new outfits.

11. Get your car ready – Take a few steps to get your car ready before winter comes because with the change in seasons comes changes in driving conditions. We live in Massachusetts, where fall is the time of the year when the temperature drops at night, and we can see an increase in rain and even ice on the roads.

road covered with fall leaves - 11 tips for fall checklist

Here are fall car maintenance tips to keep you safe on the road:

  • Check and replace wiper blades if needed.
  • Check and change fluids in your car.
  • Check your car tires.

Also, don’t forget to clean the interior of your car and empty the trunk from the summer beach chairs and umbrellas.

In case you are looking for more fall financial tasks:

  • Plan for next year’s summer vacation and start saving money in your travel account.
  • Plan for future savings – lower your food bill, cut the cable TV.
  • Update your estate plan.
  • Check rates to reduce your payment for a home and car insurance.
  • Refinance your mortgage.
  • Make sure you have a financial and medical power of attorney in place and updated.

What is on your fall financial to-do list? Do you have other fall financial tips to share?

Related Content:

  • Checklist for Retirement Planning in Your 60s
  • Planning for Retirement in Your 50s
  • 6 Steps Guide to Organize Finances for Retirement
  • Checklist of Financial Goals for Baby Boomers

Like this article? Share it if it helped you!

Filed Under: Money Management, Retirement Planning Tagged With: financial checklist, financial inventory, retirement goals, tips for fall financial checklist

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Hi, I'm Maggie. Welcome to Save, Invest & Retire! I am on a mission to help baby boomers learn how to save & invest smart. Follow me on detailed information about retirement planning, travels, and living the life of your dreams.

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