Tag Archives: Financial Advisors

Tips for Saving Money in Retirement

Tips for Saving Money in Retirement

In youth, retirement is often idealized as a return to carefree days of leisure. However, as it actually approaches, this ideal fades to reality.

Retirement is a phase of life where there’s a limited amount of money and limited ability in determining how long it must last. This is a mathematical problem that requires observant spending in order not to outlive the money, but still have enough for those things that are most important.

Plan Ahead

Financial advisors highly recommend for retirees and those about to retire to have a current snapshot of what their spending looks like. Advisors also warn that spending often rises at the onset of retirement as individuals begin to do all the things they’ve deferred while working. As these desired activities get accomplished, leisure spending often subsides. However, other expenses, health care for example, may increase. None the less, it’s vital to realize this increased spending stage of retirement and budget accordingly so that your nest egg isn’t overdrawn in the process.

Facing Realty Reality

Often one of the most emotional decisions is whether or not a housing downsize is needed. Many retirees may find themselves realizing that they undertook an unsustainable mortgage or spent too much on rental properties. These over-extensions can create a negative cash flow. While there may be emotional attachments, there needs to be an open and honest conversation about whether existing housing is sustainable or desirable in the long-run. One important point to remember is that selling isn’t cost free; there are any number of costs involved, including real estate commissions. The average closing costs were $3,741 on a 200,000 home in 2010. There may also be potentially higher property taxes from moving.

Expense Accounting

In retirement especially, the golden rule on spending should be to spend what you’ve planned and plan what you’ve spent. According to financial planners, one of the most significant retirement mistakes is not having a budget where you know fixed costs and discretionary costs. Discretionary spending is an area where it’s fairly easy to cut back on incurred costs during retirement, but you need to know what is discretionary and how much it totals. When tracking this type of spending, many find that dinning out is an area where a significant portion of money can be saved without feeling like a significant sacrifice has been made.

Stay Financially Solvent

It’s natural for parents and grandparents to want to financially assist their family, but this should never be done if it jeopardizes financial solvency. After looking at cash and expenses that are being covered for family, such as private school tuition and annual holiday gifting, and how those expenses fit into the above budget, it might be necessary to make significant deductions to avoid the risk of running out of money.

Decide What’s Most Important

During and before retirement, personal spending goals need periodic reevaluation. Start with core goals – what’s most important to you. Then, look at what the financial reality is to accomplish those goals. When the two aren’t congruent, it may be necessary to look at discretionary spending or housing. This is when the retiree will need to decide what’s most important. For example, some may be willing to give up portions of discretionary spending to maintain housing in close proximity to their family, while others may feel that helping a grandchild through college is worth a housing change. Either way, a game plan must be in place to simultaneously accomplish what’s most important and maintain financial solvency.

Bargain Driving

Outside of housing and health care, vehicles are usually one of the retirees greatest expenses. Aside from any loan amount on the vehicle, there’s the ongoing cost of operating, maintenance and repair, and insurance. Cutting back to just one car, downsizing, and avoiding wear and tear can save money.

Fill Up Your Buckets for a Stream of Retirement Income

Fill Up Your Buckets for a Stream of Retirement Income

If you’ve heard it once, you’ve heard it a million times: when it comes to retirement planning, diversification is key. Everyone knows how important it is to build up a healthy nest egg—but if you put all your eggs in one basket, you are putting your financial well-being at risk.

Look at it this way: if you throw all of your funds in one investment or market sector, what happens if that sector takes a nosedive? Your retirement savings will go down the tubes right along with it. However, if you spread your investment funds across a variety of different assets, you will greatly decrease your risk.

So, how can you possibly protect yourself from financial devastation and still save up plenty of funds for a comfortable, happy retirement? Simple. It’s time to fill up your buckets!

The art of bucket planning

As Americans are living increasingly longer lives, one of the greatest risks today’s retirees face is the possibility of outliving their income. That’s why financial experts recommend that retirees adopt what’s called “bucket planning.”

Bucket planning is the act of spreading money across various pools income to ensure you have a lifetime stream of income. This strategy is growing increasingly popular in the retirement planning field. As a matter of fact, approximately 52 percent of financial advisors recommend the bucket planning method to their clients, according to Gallant Distribution Consulting.

Collect your buckets

There are a few different bucket planning methods. Some financial advisors recommend three buckets while others say you should fill up four. However, the most basic bucket planning strategy includes the following three pails:

Bucket #1: This bucket holds into low-risk investments, such as short-term Treasury bonds. This pool provides a stream income for the first five to seven years of your retirement.

Bucket #2: This pail should be filled with indexed annuities, which offer guaranteed income with an upside potential if the markets do well. This bucket will provide income for years 8 through 15 of your retirement.

Bucket #3: This is the bucket for long-term investments that will provide a guaranteed stream of income in your later years.

Another version of bucket planning includes investing in three or four different fixed or fixed indexed annuities, each which has a unique set of terms and benefits.

In either strategy, each bucket represents a different stage in your retirement. The primary objective of your first two or three buckets is to create an annual income stream during your first 15 years of retirement. When those 15 years are up, the last bucket still holds plenty of guaranteed annual income that will last throughout your lifetime. Because you have a bucket of income set up for each retirement phase, your cash flow will never run dry.

An endless stream of income

Bucket planning has skyrocketed in popularity because it can create an endless stream of income that you won’t outlive. If you set up your buckets properly, you won’t lose money, you’ll always be accumulating money and you’ll always have a guaranteed stream of income. That means you’ll live a comfortable and financially stable retirement without having to worry about outliving your assets.

In other words, if you fill up your buckets, you won’t run out of money before you—well—kick the bucket.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.