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Ask Our Retirement Expert

Have a question? Ask our Retirement expert.

Have questions? Email Send your question to jbarnash@smartasset.com

Ask Our Retirement Expert

Have a question? Ask our Retirement expert.

Have questions? Email Send your question to jbarnash@smartasset.com

retirementIt 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. Talk to a Professional

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.

Their job is to help you manage your personal finances and reach your goals. Dealing with your day-to-day finances is not always a challenge. But getting yourself prepared for retirement is difficult to face alone.

They’re not just for the super rich, either. Financial advisors can help you determine the best way to allocate funds to your retirement accounts, navigate taxes and give you valuable advice on smart investments to make.

Recommended Action: Find a financial advisor. If you’ve never spoken with one, don’t stress. To help make sure you get the specific information you need, we designed a tool to match you with a financial advisor in your area.

Here’s how it works:

  • Take this quick survey about your current financial situation.
  • Our SmartAdvisor tool uses your answers to match you with up to three advisors who can provide expertise based on your profile and goals. You don’t have to spend hours interviewing dozens of people and firms.
  • Check out the advisor’s profiles, interview them on the phone or in person and choose who to work with in the future.

2. Maximize the Return on Your Savings

Imagine $28,243 more dollars in your bank account. It is doable. That is the interest income you would earn from generating an additional 1% in interest on a $100,000 deposit over 25 years.

Don’t make the common mistake of leaving money in a checking account accruing no interest because you think interest rates are too low and it will not 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 0.23%. By choosing an account that offers the highest rate, you can earn a lot more. Here’s an example: If you have $250,000 in a savings account and save over 25 years in retirement, you would generate extra interest income of $126,378.

Recommended Action: 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.

3. Keep Investing Intelligently

You can grow your retirement savings substantially and protect them by investing your money wisely. The best way to invest may be hard to decide upon, because it will depend on your particular financial and life situation.

For instance, you may want to invest in mutual funds, stocks and bonds, or maybe even real estate. Each has benefits and drawbacks, especially when you start considering tax implications.

That’s where a financial advisor comes in.

Do you want to meet regularly with someone who lives nearby and knows your state tax laws well? There’s an advisor for that.

Do you want to take a very hands-off approach where you only check in every few months? There’s also an advisor for that, too. A matching service like SmartAdvisor can help you find a financial advisor who meets your needs.

Recommended Action: Check out this list and make sure you’re not making these common, costly investing mistakes. If real estate investing interests you, we figured out the top cities for purchasing investment properties right now.

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.

Recommended Action: 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 with the belief that will 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.

Recommended Action: Calculate an estimate of your healthcare expenses. 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. It is 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.

Recommended Action: 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.

Living expenses can greatly affect how long your retirement savings last. For example, housing expenses cost an average $41,000 in New York City, part of the reason $1 million only lasts about 12.5 years there in retirement.

Recommended Action: 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.

Refinancing can lower your interest rate and save you money over the course of paying off a 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 it will also have lower monthly payments. That frees up money each month for you to put toward other expenses.

Recommended Action: 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.

Recommended Action: The lesson in all those numbers is that where you live will have an impact on the taxes you pay and your overall cost of living. So as you plan for life after work, 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.

Recommended Action: 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. If your situation is more complicated, potentially with you and a spouse trying to figure out how best to work together to maximize the payout, we recommend speaking with a financial advisor.

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.

Recommended Action: The math can get complicated, so your best bet is to use a calculator to determine how much life insurance you need.

Final Word

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 SmartAdvisor 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 more than 3,000 financial advisors across the country to find up to three local options that fit your needs.

Want to learn more? Check out these other posts:

Happy retirement!

Photo credit: ©iStock.com/ViewApart

Derek Silva, CEPF® Derek Silva is determined to make personal finance accessible to everyone. He writes on a variety of personal finance topics for SmartAsset, serving as a retirement and credit card expert. Derek is a member of the Society of American Business Editors and Writers and a Certified Educator in Personal Finance® (CEPF®). He has a degree from the University of Massachusetts Amherst and has spent time as an English language teacher in the Portuguese autonomous region of the Azores. The message Derek hopes people take away from his writing is, “Don’t forget that money is just a tool to help you reach your goals and live the lifestyle you want.”
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