It might seem a long way off, but retirement will be here before you know it. If you haven’t been saving, you absolutely should be -- and you should start right now.
The average life expectancy in the U.S. increased dramatically from about 70 in 1967 to about 80 in 2017. Those who reach age 65 also have a one in five chance of living into their 90s.
A longer life is great news. You have time to check more off your bucket list, but it also means you need to plan for a longer retirement.
For example, if you retire at 65, a 30-year retirement is quite possible. But even if you save $1 million for your retirement, you have to make sure to budget it out so it lasts.
Start taking these 11 steps today to make your retirement savings last throughout your golden years.
1. Start Earning Some Serious Interest on Your Savings
Imagine $28,243 more dollars in your bank account. That's the interest income you would earn with an additional 1% in interest on a $100,000 deposit over 25 years.
Even if you don't have that much to put into an account right now, the concept holds true for any amount of savings.
Don’t leave money in a checking account because you think interest rates are too low to make a difference. That is just not true.
A high-interest savings account can earn you up to nearly 2% and you can still have unrestricted access to your savings.
To put that into perspective, the national average savings account rate is 0.08%, according to the FDIC. By choosing an account that offers the highest rate, you can earn a lot more.
Try This: Open a high-yield savings account. Check out the CIT Bank Money Market Account. It offers 1.85% interest and doesn’t charge any service fees. You can open an account with a $100 minimum deposit.
2. Get Some Expert Advice
First and foremost, if you want to get an accurate picture of your expenses and retirement needs, we recommend speaking with a financial advisor that specializes in retirement planning.
Dealing with your day-to-day finances is not always a challenge. But getting yourself prepared for retirement is difficult to face alone.
A major misconception is that financial advisors are only for the super rich, but their job is to help people of all backgrounds reach their financial goals.
Advisors can help make sure you're not paying unnecessary taxes on your retirement savings and investments, as well as help you avoid other hidden fees you might not know you're paying. They can also offer advice on wise investment choices as you get closer to retirement.
Try This: Speak with a financial advisor. We've made it super easy to get in touch with one. We actually designed a tool to match you with the top financial advisors in your area.
Here's how it works:
- Answer these few easy questions about your current financial situation.
- Our tool matches you with up to three advisors who can provide expertise based on your specific goals. You don’t have to spend hours interviewing dozens of people and firms.
- Check out the advisors' profiles, interview them on the phone or in person and choose who to work with in the future.
3. Eliminate High-Interest Credit Card Debt
Making steep monthly payments on high-interest credit card debt can take a toll on what you’re able to save for retirement. Getting rid of this debt could free up more money you could funnel into your IRA, high-interest savings account or other investments.
One quick way to do this is to take out a personal loan, which probably sounds counter-productive. But it’s one of the speediest ways to rid yourself of credit card debt and could potentially save you thousands in interest payments.
Depending on your credit situation, personal loans typically have lower interest rates and monthly payments than credit cards and you can use them to pay off most or all of your debt in one lump sum. That way, your payments are all merged into a single account with your lender.
For example, you could take out a personal loan with a company like SoFi, which offers loans of up to $100,000 with a fixed-rate APY starting at 6.199% and payment plans of 3-7 years.
4. Don't Overpay On Your Taxes
Some common retirement tax mistakes include overpaying taxes on Social Security benefits, paying investment surtaxes, overpaying capital gains taxes, paying higher medicare premiums and paying penalties on 401(k) or other retirement account distributions.
As you withdraw money from your 401(k) and other retirement accounts, you will need to pay taxes on some or all of that money. You can lower the tax hit by withdrawing money from certain accounts in an informed way.
For example, money you withdraw from a Roth IRA is not taxable income. Money you withdraw from a 401(k) is taxable. Depending on how much you spend each month and the makeup of your savings, your tax situation could look quite different.
What is the best way to draw money from your accounts? The answer will vary by person, and this is another area where a financial advisor can really help you. In the years before retirement, they can explain how to allocate your savings so that you’re set up for retirement. Once you retire, an advisor can show you how to use that savings in a tax-efficient way.
Try This: Use this free service to find a financial advisor with tax expertise. Even if you ultimately decide not to engage a financial advisor, it can still be useful to speak with one to get a sense for their value.
5. Plan for Healthcare Expenses
Studies show the average 65-year-old couple will need $220,000 to cover health care expenses in retirement.
But most people dramatically underestimate their healthcare expenses and overestimate the help they will get from Medicare. Top economist Paul Frostin estimates that Medicare will only cover 51% of healthcare expenses for retirees.
Many people approach retirement thinking they will have far lower expenses in their golden years. While the average retiree has 25% lower expenses than non-retirees, some spending categories do actually increase. In particular, healthcare expenses jump up by more than 40%. So as you plan for retirement, you cannot overlook your medical bills.
Try This: Estimate your healthcare expenses ahead of time. This calculator from AARP is a good starting point.
6. Understand How Best to Use Equity in Your Home
The average retiree has twice as much value in their home equity than in savings, according to Jamie Hopkins at Forbes. This means home equity can be a valuable resource for retirement income. But tapping into that home equity can be extremely tricky.
A reverse mortgage is one option, a type of loan that allows you to convert your home equity into cash. Your home is used as collateral for the loan and you continue to make the insurance and tax payments. Generally, you are able to keep the home until you either move out or pass away.
For some, a reverse mortgage can be a great way to supplement income during retirement. Finding the right balance is something a financial advisor can assist you with.
There are other options as well: selling your home and downsizing or utilizing a home equity line of credit.
Try This: Learn more about reverse mortgages. Quicken Loans offers some good resources. Also, if you have a mortgage make sure you are not paying too much in monthly payment. Use this refinance calculator to see if you can save money on refinancing.
7. Downsize... Even if You've Paid Off Your Mortgage
Housing is one of the largest expenses for retirees. Even if you’ve fully paid off a mortgage, you can still have significant housing costs (think property taxes, insurance and maintenance).
Downsizing is one way to reduce those costs.
Many people buy their homes during the middle of their lives. That could be a time when you have children living with you or when you simply want a larger space where you can enjoy your life. As you get older and the kids move, a smaller space could be enough for you with your new lifestyle. It could also save you significant money.
Try This: Explore downsizing options and home values in your neighborhood. There are hefty transaction fees in selling your current home and buying another so we recommend targeting a home that is approximately 40% lower in price than your current home.
8. Refinance Your Mortgage
Are you still paying off your mortgage? You should consider refinancing.
This can lower your interest rate and save you money over the course of paying off your mortgage. In the current economy, where interest rates are still quite low, refinancing is a particularly useful tool for homeowners.
Refinancing a mortgage to a longer term can also help you free up money for you to use elsewhere. For example, let’s say you have 10 years remaining to pay off your mortgage and you refinance to a 15-year loan with a lower interest rate. Your new mortgage will be longer, but will also have lower monthly payments. That frees up money each month for you to put toward other expenses.
Try This: There are a number of factors to consider with refinancing, so make sure to do your homework. Start by using a simple mortgage refinancing calculator to see if it makes sense, mathematically, to consider refinancing.
9. Move to a Low Tax State
One way to lower your tax bill in retirement is to move to an area with lower tax rates. This will not affect federal taxes, but it can greatly lower your state and local costs.
Consider some examples of how moving may benefit you. The difference between the average property tax bill in New Jersey and the average property tax bill in Alabama is more than $7,000.
The average state and local sales tax in Louisiana is almost 10%, but four states (Delaware, Montana, New Hampshire and Oregon) have neither state nor local sales taxes.
The average costs of housing, food, transportation and medicine also vary by thousands of dollars in different states. The average Washington, D.C. resident pays 50% more for food than the average Mississippi resident.
Try This: Consider which state is the most retirement friendly. Even if you aren’t willing to relocate across the country, moving a few hours away to get over the state border could pay off in a big way.
10. Maximize Social Security Income
Social Security benefits are a major source of income for the average retiree. You can help yourself in retirement by getting yourself the maximum benefit possible.
To do that, you will need to work a bit longer and retire slightly later. Because the Social Security Administration pays your distributions based on your average salary over 35 years, it is ideal to work at least that long. If you don’t participate in the labor force that many years, you will decrease your payment.
It is possible to receive Social Security benefits starting at age 62, but that will decrease the size of your benefit by 20% to 30% of its maximum size. You can increase your benefit by working longer and waiting until after 65 to elect your benefits. Each year you work over age 65 (up to 70) can increase your benefit by as much as 8%.
Waiting to file for Social Security isn’t possible for everyone, but it will help you maximize your retirement income.
Try This: If your financial situation is relatively straightforward our Social Security Calculator will provide an accurate estimate on how election age may affect your Social Security income.
11. Have the Right Life Insurance Products
Everyone should consider buying life insurance. Should something happen to you, a life insurance policy provides financial protection to your dependents.
You should also consider life insurance regardless of your salary, your work situation or your good health. Do you have life insurance through an employer? That’s great, but your policy won’t follow you if you switch jobs or retire. That’s why you need to look into getting your own policy, independent of any employer.
The primary consideration with life insurance is how large a policy you need. Your ideal policy size depends on how much you make, what you have for assets, your age and the financial situation of your dependents.
Try This: The math can get complicated, so your best bet is to use a calculator to determine how much life insurance you need.
If there is one common theme here, it is the difference between good decisions and bad decisions and good habits and bad habits can equal hundreds of thousands of dollars in retirement.
The truth is many of these challenges are complex. For those motivated to do it themselves, there are certainly some great tools on our website (and others). For those who need help, like most of us, a financial advisor can help you to realize your goals and make sure your money will last.
Finding the right advisor might seem daunting, but our matching tool allows you to compare local, fiduciary financial advisors and make the best choice for you. All you have to do is answer series of simple questions and it narrows down thousands of financial advisors across the country to find up to three options near you who fit your needs.