Continuing Financial Literacy Education after Retirement

People nearing retirement face many important, and often irreversible, choices. It is vital that you reassess your financial literacy as you prepare or begin retirement as your financial needs, goals and options may have changed.

Although these financial decisions will affect your well being for the remainder of your lifetime, many do not possess enough basic financial knowledge to make confident choices. Keep in mind, the ability to make sound financial decisions declines as one reaches 60 while one’s confidence in one’s abilities remains the same. Overconfidence is dangerous at any age. None of us want to believe our abilities are waning or that there is new, and better, options out there, and yet we’ve all seen it with aging parents or loved ones.

Today, when you take more personal responsibility for saving and investing for retirement it can be difficult to keep up with the complex financial services industry without any formal training. Don’t be embarrassed to admit that new financial products or terminology can seem confusing. After all, financial literacy is not genetically encoded — someone has to teach you.

The more you know, the easier it will be to make solid, informed decisions which ensure you have a rich and fulfilling retirement. Take some time to educate yourself and put your knowledge into action. Here is some financial know-how to help you get started.

10 Ways To Be Financially Literate in Retirement

1. Create a Retirement Budget

Have you spent time analyzing the numbers to come up with an accurate estimate of what you spend now and what will change after retirement? Working through a before and after retirement budget is important. This helps you see how long your money will last depending on your personal goals, such as starting a business or moving closer to the kids, and financial decisions such as your retirement age and taxes.

Start by tracking your income and expenses. Then, estimate how much money you will need in retirement to support your chosen lifestyle. If you are carrying debt after you have stopped working, make sure your budget includes monthly payments to reduce it. Once you have a budget you know you can stick to, start putting it into action.

Your budget needs to include:

  • How much money is coming in
  • How much it will cost to reach the goals you identified
  • How much debt you have

You will need:

  • Bank statements and/or credit card statements
  • 1-3 years of tax returns
  • Retirement account(s) and investment portfolio records
  • Any loans or mortgage statements
  • Bills and statements for utilities or services (water, power, cable, etc.)
  • Copies of your insurance policies
  • You Still Need an Emergency Savings Fund

Do you have a minimum of three month’s worth of living expenses saved in a checking/savings account? Few of us head into retirement expecting the worst, however, sometimes there can be delays receiving pension or Social Security disbursements, maybe a leaky roof or costly medical bills.

It is important to have an emergency savings you can rely on to prevent going into debt after retirement. All of your extra cash does not need to go into savings, but without the income streams of employment you will need some extra padding to weather any storm which comes your way.

3. Find Ways to Cut Expenses

Saving more will help make you better prepared, but it is equally important to reassess your spending habits and find new ways to cut expenses. Take a look at your bills and figure out ways to trim them.

Perhaps you don’t need a latte from the coffee shop every morning, those extra movie channels or to eat out three nights a week. Consider growing your own vegetables and spending time making homemade gifts which save money and have more personal value. Cutting your debt now will mean less worry throughout retirement. Even cutting a few unnecessary expenses can bring you closer to reaching your retirement goals.

  • Take Stock of Your Protections (Health Insurance, Homeowners Insurance, etc.)

Do you have enough homeowner’s insurance to cover a major repair or accident? Will you keep your current health insurance provider after you’ve left your employer? Do you understand your Medicare benefits? Do you have long term care insurance for your 80’s and 90’s?

If your insurance coverage is lacking now is the time to increase it or change it. Speak with your trusted insurance agent to determine if your current policies will protect you from likely scenarios and find ways to save by lowering your coverage, upping your deductible or canceling supplemental services you no longer need.

5. Understand Your Tax Liability in Retirement

Do you know how your various sources of retirement income will be taxed? Most retirees are in for an unpleasant surprise when taxes come due as many are unaware of the tax liabilities assessed on retirement accounts, Social Security or investment income. Many of your other financial decisions are going to hinge upon the tax implications which will follow. You can gain a general idea of how much you will owe, but it is imperative that you ask a financial professional for assistance in regard to your personal situation.

  • Learn About Social Security Before You Claim Benefits

Have you used a Social Security calculator, or worked with a financial advisor who can give advice on your Social Security benefits, to show you when it would be most advantageous for you and your spouse to each begin your Social Security benefits? If you plan on working in retirement, do you know how your earnings may affect your Social Security benefits if you begin benefits before your Full Retirement Age? If you are under 66, have already started taking Social Security and make too much, you may be require to pay some money back to the government.

  • Learn How To Withdraw From Your Retirement Accounts

If you have a 401k plan do you know whether you will leave your money in the plan or roll it over to an IRA account? The right answer may depend on how old you are. If you have a pension do you understand your pension choices and know which one is best for you and your family? Pension decisions are irrevocable – meaning you cannot change them.

  • Create an Investment Plan and/or Find New Streams of Income

Income is vital for maintaining a healthy lifestyle in retirement. Whether you rely on investment income, have dreams of starting your own business or want to rent out your vacation home, you will want to create an investment plan so you have a disciplined approach to investing throughout retirement.

An investment plan helps you understand the job you need your money to do for you. If you are investing in the markets, make sure your portfolio is diversified and that you are investing in things you understand. This income can be compared against potential retirement expenses to help you manage cash flow.

  • Find a Financial Advisor or Retirement Planner You Can Trust

Have you had a fee only financial advisor who has expertise in retirement planning review your retirement plan? You can find advisors who will do this for a flat rate, as well as advisors who will manage your retirement investments and help with planning decisions. These advisors can explain what holdings are in a particular fund and why they would recommend one investment over another; advisors usually don’t charge to assist with these services.

10. Continue Your Financial Education

Your financial education is never over, learn as much as you can. Continue to read books and articles on retirement planning, study various types of retirement investment options to learn how they can be used to deliver consistent retirement income and speak with your advisor to determine how each tool works before you decide which is best for you.

A New Financial Outlook for Your ‘Golden Years’

One of the best things you can do to protect the soundness of your future financial decisions, and protect your assets from future friendly strangers, is build a solid plan while in your 50’s and 60’s.

You can commit your retirement income plan and the investment strategy that results from it to writing so you have a road map to follow well into your senior years. You can share your plan with trusted family members and determine ahead of time what circumstances would legitimately warrant a deviation from your plan. You can hire a firm or advisor to administer your plan. One day, you and/or your spouse will value the steps you takes today.

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