A great retirement is a goal that many seniors spend their entire lives working toward. If you prepare for it the right way, you can experience the freedom of very little responsibilities or obligations in your golden years. Unfortunately, many Americans don’t get to enjoy the true freedom retirement can bring.
In a study published by The Balance, only 42% of seniors have attempted to calculate how much money they will need to cover their expenses once they retire. The key to a smooth-sailing retirement is to calculate these costs long before you decide to leave the workforce.
Determine retirement spending
Seniors should plan for retirement years in advance. When you decide it is time to begin planning for retirement, you will have time to sit down, create a timeline and a comprehensive outline of your finances, and how much you must put aside for retirement spending.
You will first want to determine what retirement means to you. If retirement means traveling the world for a few months, you must prepare for that lifestyle. It would help if you considered how it would affect you financially once you make it back home. Having realistic expectations about your spending in retirement will help you establish a successful game plan.
Seniors are living longer than ever before. The amount of money you spend now will likely increase once you enter retirement. It would be beneficial if you calculated all bills, mortgage, groceries, healthcare expenses, and more to create an accurate estimate of your monthly spending to prepare for the years to come.
Invest in your healthcare
According to Fidelity Investments, a 65-year-old couple is expected to spend $285,000 on health care and medical expenses during retirement — this amount has increased $5,000 from the previous year. Consequently, the cost of healthcare will likely increase with the years to come. Many seniors believe Medicare is free, and do not save money pre-retirement strictly for healthcare.
As you plan your retirement savings plan, create a separate savings account that will be strictly for healthcare costs. A health savings account (HSA) will allow you to put funds into an account that can only be used for healthcare expenses.
An HSA is only available to taxpayers who have a high-deductible health plan. The money you invest in your HSA will be tax-free and will be beneficial to you during retirement. However, you can no longer contribute to an HSA when your Medicare begins, but you can still access your account.
Manage your debt
The last thing seniors want to stress over in retirement is their debt. The more debt you have when entering retirement is just more money you will have to save and spend. When you pay off your debt before you retire, it will give you more flexibility during retirement.
Whether you have student loans, a mortgage, or maxed out credit cards, you should create a plan to pay off all debt before considering retirement. When you are actively working, you should put any bonuses received directly towards your debt; this will help decrease the number in chunks. You can also sell unwanted household items or gifts for extra money to put towards your loans.
With that said, you should not use your retirement savings to pay off your debt. Instead, you should consolidate your loans to get rid of the several interest payments you are paying on. When you consolidate your loans, you can have one number to look at and determine how to tackle this debt before you retire.
You do not have to compromise your essential goals in retirement while trying to downsize your spending. When you create a retirement plan, you can reflect on what you value most and how you vision your future. Retirement may be a little difficult at first, but once you put your priorities in place, it will be exactly what you have been looking forward to all these years.
Written by: Danielle Kunkle Roberts
Danielle Kunkle Roberts is a founding partner at Boomer Benefits and a Medicare Supplement Accredited Advisor. She and her team help thousands of baby boomers learn the ropes regarding Medicare every year.