Financial Advice for Seniors: How to Protect Your Retirement Funds
You’ve spent a long time working to provide for your future and enjoy the ability to relax in your retirement years. But market fluctuations are inevitable and the possibility of a recession is something that everyone should plan for.
As the adult population in America continues to grow and more people reach retirement, it’s more important than ever for people to think about safeguarding their nest egg. What does your current financial situation look like? What are your expectations for the future? Are you contemplating aging in place or are you more interested in the advantages offered in a supportive living community? All of these are important questions to ask as you try to protect your retirement funds.
In this article we’ll provide more details and actionable steps you can take to protect your retirement funds. If you have questions about any of these tips or a unique situation, seek financial advice from a qualified financial planner.
7 Tips to Help Protect Your Retirement Savings
1. Create a Financial Forecast
One way to plan for your retirement years, or even how to handle money during your retirement, is to develop a financial forecast. By estimating the amount of money you will need for each year of retirement, you can determine how large a nest egg you need and how much you can feasibly spend each year. Many financial advisors recommend that if you plan to retire at 65, you should create a financial plan for at least the next 20 years, although you’ll see in our next tip that it may be smart to expand that timeline.
To help make your retirement funds last, you may want to look into estimated 401(k) withdrawals and an IRA as a new source of income. When combined with Social Security benefits and any other retirement income you have, these funds can be used to cover your everyday living costs. Additionally, setting a budget for your retirement savings is the best way to prevent overspending, depleting your savings quickly and going into debt.
2. Expect to Live Longer Than Previous Generations
As more medical advancements are made, it’s very likely that the average 65-year-old of today will live well into their 80s or 90s. Because of this, it’s smart to plan for 30 or more years of retirement income. People today are living longer because they are taking better care of themselves and generally living more active and healthy lifestyles.
The downside of a longer, healthier life is that, without careful financial planning, it’s very easy to outlive your savings and find yourself trying to survive on what’s left of your Social Security income. To cover needs like housing, food and insurance, you may want to consider purchasing an income annuity with your retirement savings. This type of investment can help you to create a simple and steady stream of income that is guaranteed for as long as you (or your partner) live.
For more information on income annuities and to find out how much you may need in income, check out Charles Schwab’s Income Annuity Estimator.
3. Plan for Future Healthcare Costs
As more Americans live longer and the cost of healthcare continues to rise, managing your future healthcare costs is extremely important. When discussing your retirement plans, you should consider the impact of long-term care costs. Based on average life expectancy data, research shows that the average 65-year-old American needs roughly $285,000 to cover the cost of healthcare during their retirement years.
However, many people will live longer and see higher healthcare costs. Additionally, these figures don’t take into consideration long-term care expenses. That’s why having a dedicated sum of money set aside for long-term care expenses can help protect your retirement income. Long-term care insurance is one way you can help offset assisted living costs and other expenses. Just keep in mind that providers typically base the cost of these policies on age, so the earlier you invest in coverage, the lower your premiums will be.
4. Prepare for Inflation
Inflation can easily chip away at the purchasing power of your retirement funds over time. By increasing the future costs of goods and services, inflation can greatly affect your retirement income. In fact, even a relatively low inflation rate can greatly diminish your purchasing power.
While Social Security, as well as some pensions and annuities, can keep up with inflation by adjusting for the annual cost of living and other market-related performance, it’s important to consider investments that are designed to keep up with inflation. These include stocks and stock mutual funds, real estate securities and Treasury Inflation-Protected Securities (TIPS.)
5. Keep Some Cash on Hand
Even if you’ve taken the time to carefully plan for your monthly living expenses and long-term care, there is always a chance that an unexpected event could throw a wrench in your financial forecast. If you have to cover the cost of a medical emergency or a major home repair before moving to a supportive living community, you’ll want to do everything you can to avoid dipping into your long-term savings to cover the expense.
Keeping some emergency money on hand in a checking or savings account can be helpful for these types of situations. Additionally, there are often big penalties included when you pull from your retirement accounts early, so keep that in mind if you’re close to, but not at retirement age when expenses come up. With the chance of penalties and the fact that you’ll miss out on interest on those funds, it’s best to have a backup plan just in case.
6. Avoid Withdrawing Too Much from Savings
Spending your savings too quickly can put your retirement funds at risk. As a good rule of thumb, Fidelity recommends that retired adults maintain a sustainable withdrawal rate of four to five percent annually, adjusted for inflation. If you want to feel confident that your savings will last for the next 20 to 30 years of retirement, this is the most soundproof plan.
Working with a financial advisor can also be a great way to develop and maintain retirement investments that will help to make sure you don’t run out of money as the market changes over the next several years.
7. Don’t Forget About Taxes
There’s nothing worse than creating a sound financial plan only to run into tax surprises that threaten to cut into your nest egg. And the way you choose to invest your current tax returns can have quite the impact your future tax returns.
For example, if you were to put money away in a traditional IRA, you are eligible to deduct any contributions from your current tax return. But when you take money out of the account, you will be required to pay taxes on it. If you choose to pay into a Roth IRA, you must pay taxes on the amount you contribute to the account but there’s no need to pay taxes later on when you withdraw funds during your retirement years. Both strategies have their pros and cons, so work with your family or a financial planner to determine the best option for your situation.
Plan for a Fulfilling and Financially Stable Retirement at Presidential Place
At Presidential Place, we want our residents to feel confident in their financial futures and excited about the lives they will build at our supportive living community in Hollywood, FL. We offer two different neighborhoods, assisted living and memory care, for those with different support needs and price points.
If you’re interested in learning more about planning for your retirement years and how our community can help you create a stable, affordable living plan, please give us a call at (954) 894-0059. You can also contact us online for more information.