Ready to Retire

How to Make Sure You're Financially Prepared for Retirement

Unless you plan to work until you drop, you must prepare for retirement.

According to The Balance, the average amount saved for those who are 50 to 55 is $124, 831 (“Average Retirement Savings,” 2018). You don’t need a calculator to realize that $124,000 is not enough.

Here are some steps to take to make sure you are financially ready to retire:

Dare to Downsize

Some homeowners, who have watched the value of their homes decline in recent years, are reluctant to sell until the real estate market rebounds. Even if your home hasn’t returned to its former value, moving to a smaller, less expensive home can save you thousands of dollars a year in taxes, utility costs, and insurance.

These savings can be funneled into retirement savings. You may need some help with this approach but do the financial analysis and make a wise decision.

Consolidate Your Orphaned 403(b) or 401(k) Plans

You’ve probably changed jobs several times and you may still have money in former employers’ retirement plans. Leaving money in a former employer’s plan is not as bad as cashing it out. But as you approach retirement, it is a good idea to consolidate your savings into one IRA.

There is another step you can take prior to retirement, and that is to consolidate your retirement accounts with one vendor. Then, upon retirement, it will be easier to move to an IRA. Or, you may leave the account with that final vendor. You will get a better handle on how much money you have and where it’s invested by consolidating your accounts. You will also have more investment choices and pay lower administrative expenses.

Don’t forget, if you have ministerial status, you need to leave the money in your 403(b)(9) account to take advantage of the Housing Allowance Distribution.

Consider Long-Term Care Insurance

A well-funded retirement savings plan could be decimated in a matter of months if you end up in a nursing home or require round-the-clock home health care. Medicare doesn’t cover the cost of long-term care and Medicaid isn’t available until you’ve spent down most of your savings.

Long-term care insurance could prevent this from happening, but make sure it fits your budget before making such a purchase. The costs are often high. If you do not take out long-termcare insurance, set aside or allocate 3-5 years of the monthly cost of assisted care living expenses in your area of the country.

Weigh Your Social Security Options

You are eligible to file for social security benefits when you turn 62, but if you do, your monthly check will be reduced significantly for the rest of your life. You may have little choice if you are out of work or in poor health and need the money to pay expenses. But if you have the wherewithal to work a few more years or have other sources of income, delaying checks until age 66, or your full benefit age, will increase your monthly amount by 33% or more.

Earn Supplemental Income

You can also supplement your earnings by working and/or consulting part time in your area of expertise. In retirement, you can get paid for doing your favorite hobby. Think of how you can use your knowledge and skills to earn additional income. At 97 years of age, Billy Graham received royalties on the book he wrote many years back.

Looking for faith-based IRA options? The FaithBased IRA from Envoy Financial could be the perfect solution for you!

Will I Have Enough Money to Retire?

Here are 5 factors that may affect your retirement savings

(1) Inflation

  • Reduces how much you can buy today, compared to last year

  • Historically, inflation averages 3% annually

  • Your investments need to keep pace with or outpace inflation

(2) Investment Risk

  • Determine how much potential gain you are aiming to achieve with your investments, understanding that also means you may potentially lose a similar amount

  • More risk equals more volatility in returns and account values go up and down more

  • Diversify your portfolio by allocating money to multiple asset classes so you are not totally exposed if one asset type (such as stocks) drops dramatically

(3) Healthcare and Long-Term Care Expenses

  • A number of studies show that the average 65 year-old couple can expect to spend hundreds of thousands of dollars on healthcare in retirement

  • The combination of increasing life expectancy and growing medical treatment costs can have a huge negative impact on savings

  • Consider obtaining Long Term Care insurance

  • The premiums can be significant, but having the coverage in place may help avoid disrupting your overall retirement planning strategy

(4) Taxes

  • Employer-sponsored and individual pre-tax accounts offer a variety of ways to receive tax breaks when making your retirement savings contributions

  • Pre-tax contributions provide a current reduction in taxable income, and therefore a reduction in the taxes you pay each year as you are adding to your accounts

  • Roth contributions are done on an after-tax basis, which does not provide a current year tax advantage, but does allow you to make withdrawals on a tax-free basis in retirement

(5) You

  • Set goals for what your financial needs will be in retirement

  • Evaluate your personal risk profile and asset allocation strategy

  • Take advantage of any employer matching contributions for which you may be eligible

  • Roll over assets from former employer plans rather than cashing out those accounts

  • Seek out trusted professional guidance or use available self-help tools

Is your staff prepared for the future? Visit Envoy Financial to learn how we can help you equip your staff for their retirement.

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