No matter how old you are, it is never too early or too late to plan for your financial future. Many years ago, I read a little booklet entitled “The Tyranny of the Urgent” that has stuck with me ever since. The basic premise was that we often spend most of our time handling urgent problems while actually putting off more important issues. This can be especially true when it comes to financial planning. In today’s world, we are always so busy with jobs, families, etc., that we do not take the time to carefully plan for our future. Being properly prepared goes a long way when it comes to your financial future. Therefore, here are four financial tips to help you be properly prepared for Retirement.
1. Life Insurance
When we are young life insurance is critical to help provide for our family if we should meet an untimely demise. It helps to provide funds to pay off our mortgage and/or cover bills when our income is no longer there for the family. It can also help cover funeral expenses and other bills. You want to make sure the ones you love are left financially secure.
However,as we get older and we pay down our mortgage and receive a pension or Social Security, having life insurance becomes less critical and more expensive (unless we have a flat rate policy like “Whole Life”). Many older people who have put aside enough money to cover their now reduced living expenses find that life insurance is an unnecessary expense. So as retirement (or any other life change event) approaches you should talk with your financial advisor about how this affects your insurance needs.Â
Millard Beatty Associates reminds us that “Insurance transfers the financial risk of life’s events to an insurance company. A sound insurance strategy can help protect your family from the financial consequences of those events. A strategy can include personal insurance, liability insurance, and life insurance.”
2. Pay Off Your Debts
Having a huge amount of debt is not a good way to start your retirement. You should be debt free when you retire. If you can’t afford to eliminate your debt while working, how can you expect to afford it once you are retired… unless you get a 100% pension and/or take another job once you retire? So before you retire you should make sure you have a plan to get credit card balances, car payments and even your mortgage paid off. If you still have a significant mortgage you might consider downsizing or moving to a less expensive location. Right now housing costs in Florida and Arizona are considerably less than in California, New York, Northern Virginia, etc. So you might be able to get a less expensive house or Condo and eliminate your mortgage that way.
3. Catch-Up Contributions
It is never too late to plan for your financial future. The IRS allows for those who have not contributed enough to their retirement earlier to make “catch-up contributions”. According to the IRS … Individuals who are age 50 or over by the end of the calendar year can make annual catch–up contributions. Catch-up contributions up to $6,000 in 2015 and 2016 may be permitted by these plans: 401(k) or 403(b). You can make catch-up contributions to your traditional or Roth IRA up to $1,000 in 2015 and 2016.
For 2015 and 2016, your total contributions to all of your traditional and Roth IRAs cannot be more than:
- $5,500 ($6,500 if you’re age 50 or older), or
- your taxable compensation for the year, if your compensation was less than this dollar limit.
Catch-up contributions are due by the due date of your tax return (not including extensions). Employees with at least 15 years of service may be eligible to make additional contributions to a 403(b) plan in addition to the regular catch-up for participants who are age 50 or over.
See the IRS discussion of 403(b) Contribution Limits for details. Another type of retirement plan called “SIMPLE” has different rules. A SIMPLE IRA or a SIMPLE 401(k) plan may permit catch-up contributions up to $3,000 in 2015 and 2016. Salary reduction contributions in a SIMPLE IRA plan are not treated as catch-up contributions until they exceed $12,500 in 2015 and 2016.
3. Form a Post-Retirement Budget
Whether or not you had a budget prior to retirement, you need to create a new budget based on your new income and expenses. Track your spending and calculate which expenses will be different, perhaps you will spend less on gas, business lunches and work clothes but more on groceries, and entertainment, etc. You also need to take into consideration that your income will be different.
4. Reevaluate Your Health and Long-Term Care Insurance
As you get older, your body starts to break down more. You do not want to get stuck paying those expensive bills. Having health insurance is now required by law and you may no longer be eligible under your employer’s policy so you may need to look into getting a private policy or you may now qualify for ObamaCare. Medicare is our country’s health insurance program for people age 65 or older. Certain people younger than age 65 can qualify for Medicare, too, including those with disabilities and those who have permanent kidney failure. If you qualify, Medicare and Medicaid are also worth looking at.
Another expense that many people overlook is, what happens if you can no longer care for yourself? This is where long-term care insurance comes in. Long–term care insurance helps provide for the cost of long-term care beyond a predetermined period. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid. Unfortunately, long-term care doesn’t come cheap: According to Genworth Financial, a private room in a nursing home averaged $92,378 in 2016, and a home health aide averaged $46,332. To protect against the risk of having these costs many retirees turn to Long-term Care insurance, although the chance that you will actually use the coverage is relatively small since you generally have to be disabled for a period before you become eligible for benefits and the actual cost of the insurance is relatively high. AARP has a good article on Long-term Care insurance.
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