National Retirement Security Week – Understanding what you need to do to live your best financial life in retirement

October is not only Financial Planning Month, but yesterday also marked the beginning of National Retirement Security Week. The week began as a national effort to raise public awareness about the importance of saving for retirement and working toward life savings goals. At Sacks & Associates Wealth Management our goal is to help our clients with their financial security leading up to and throughout retirement so that they can make the most of their golden years.

It helps to start early, but most importantly, responsible planners should have a fundamental understanding of what’s ahead.  Here are some things you should start to consider as you get closer to hitting your retirement age to help ensure you’re living your best financial life in retirement.

Understanding your cost of living throughout your ENTIRE retirement

Did you know that 1 in 4 of today’s 65-year-olds will live past 90? That means about 25% of all retirees will need to live off of their savings for more than 25 years. Understandably, retirees want to keep the same lifestyle they had during their working years, but many underestimate how many years they will need financial stability. A lack of sustainability and insightful planning can cause funds to run out much quicker than anticipated.

Expenses are unique to every person or family. Before you hit retirement, it’s a good idea to track your expenses for about a year to get an idea on what you’re really spending on the basics—food, housing, healthcare—as well as the extras—entertainment, travel, etc. You should also consider your debt situation, such as if your mortgage will be paid off before you retire, and additional large expenses you might incur, like finally moving to your dream home in a warmer climate.

Lastly, it’s important to consider inflation into your planning. A dollar today isn’t worth what it once was, and it’ll be worth even less in the future. By factoring inflation into your roadmap, you’ll be much more likely to feel financially secure throughout your retired years.

Getting the most out of your Social Security benefits

Social security is a significant portion of most people’s retirement income. That means it’s important to understand how to maximize your benefits BEFORE you stop working. Several factors go into calculating an individual’s benefits. Some of them are out of your control—like the year you were born, which determines when you hit full retirement age. But there are a few steps you can take to ensure larger benefits and make the most of them.

To calculate your benefits, the Social Security Administration uses your 35 highest-earning years (adjusted for inflation). If you’re thinking about retiring early, it might be in your best interest to wait a little longer, allowing more high-income years to factor into your calculations. Plus, there are even more added benefits to waiting. Individuals can start collecting Social Security at age 62, but you could expect benefits to be up to about 25% smaller than if you waited until full retirement age. After full retirement age, your benefits increase about 8% every year you work past retirement, BUT only up to age 70.

Having a financial safety net

Emergencies are unexpected, but they do happen and can also cost a lot of money. Without the right financial safety net, you can find yourself in deep financial trouble, requiring you to tap into your retirement savings early. So, the question is, what should be included in that safety net?

First and foremost, you should have liquid emergency funds. These funds can help cover anything from medical emergencies to losing your job. It’s suggested to have enough money to cover up to six months of living expenses, that way, if you’re out of work for an extended period of time, you have enough to cover your living expenses. Unfortunately, many who experience a financial emergency fall back on their retirement nest egg, making the longer-term financial situation even worse.

Insurance coverage is another large piece of the financial security puzzle. Disability insurance and life insurance are two important ways to protect yourself financially. Your employer may provide this coverage as part of your employee benefits package through an additional payroll deduction. However it may be prudent to obtain individual coverage—employer coverage is not always portable in the event of a change in employment. Additionally, a life insurance policy provides financial protection for your family if anything were to happen to you or your spouse. The money can be used to cover debt, pay monthly expenses or be set aside for things like college expenses.

As you can see, there are a lot of issues that you need to consider when thinking about your financial future. If you have any questions about your retirement plan, you can contact me at [email protected].