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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

make your retirement savings last

The average life expectancy in the U.S. has 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. It means you have time to check more off your bucket list. At the same time, it means you need to plan for a longer retirement. If you retire at 65, a 30-year retirement is quite possible. Even if you save $1 million for your retirement, you have to make sure to budget it out so it lasts. Here are 11 steps to set yourself for a happy retirement without draining your savings too soon.

1. 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 Fronstin 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.

Update: To get an accurate picture of your expenses and retirement needs we recommend speaking with a financial advisor that specializes in retirement planning.

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 1.0% in interest on on a $100,000 deposit over 25 years.

A very common mistake is to leave money in a checking account accruing no interest. People either think that interest rates are too low and it will not make a difference or the money will not be in your bank account so it will not make a difference. Fortunately that is just not true.

If you use a high interest savings account you can earn up to 1.65% and 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 of 1.65% 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: Follow this link to apply for Synchrony Bank’s 1.65% high yield savings account, one of the highest rates available nationwide.

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. 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. A matching service like SmartAdvisor can help you find a financial advisor who meets your needs.

Recommended Action: Find the right financial advisor for your needs.

4. Consider a Part-time Job

According to data from the U.S. Census Bureau, about 10% of people older than 65 are working part-time. Getting such a gig may sound like unconventional advice when talking about retirement. The truth is that having a few sources of income is one of the best ways to ensure that you don’t run out of money. So as you try to stretch your savings to cover your full retirement, consider a part-time job that brings in some extra cash.

Recommended Action: Consider job boards for part time work. Monster and Indeed are good examples but there are also local options for many cities and states.

5. Don’t Overpay on Your Taxes

The most common mistakes made on taxes in retirement are 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 one area where a financial advisor can really help you. In the years before retirement, a financial advisor 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: When it comes to taxes, it can really pay to speak to a professional. You can use this 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.

6. Understand How Best to Use Equity in Your Home

make your retirement savings last

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.

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 to 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 simply 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 and retire slightly later. First of all, 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. If you want to calculate your benefit, our Social Security calculator will handle the calculations for you.

Recommended Action: The key here is running the math on when to elect Social Security. 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, this is an area where we would recommend speaking to a specialist in retirement planning. Going through this survey will match you to a financial advisor in minutes, in your neighborhood, who will be able to help walk you through different scenarios.

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

make your retirement savings last

If there is one common theme here, it is that 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 that many of these challenges are complex – for those that are motivated to do it themselves there are certainly some great tools on our website (and others). For those that 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 for you might seem daunting, but it’s actually easier than ever before.

SmartAdvisor is an online matching tool that allows you to compare local, fiduciary financial advisors and make the best choice for you. SmartAdvisor asks you a series of questions and narrows down more than 3,000 financial advisors across the country to find up to three options that fit your needs in your area.

Photo credit: ©iStock.com/designer491, ©iStock.com/Johnny Greig, ©iStock.com/Geber86

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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