Four Strategies for Boosting Your Retirement Readiness
If you’re north of age 40, you might think about retirement with more financial urgency than you did in your 20s and 30s. You also might feel as if your fiscal footpath could use some fertilization – something to help those retirement funds grow.
Financial experts will tell you this is exactly the right time to get serious about a retirement plan.
“It’s not too late to add some new strategies to your approach,” says Jeff Rubleski, Certified Financial Planner, CFP®, and director of Sales Strategy at Blue Cross Blue Shield of Michigan.
Yes, you should be saving and investing. But Rubleski recommends four specific areas you can adjust to make sure you are retirement-ready.
Max out your retirement fund contributions
If you have a 401(k) or 403(b) retirement plan through your job, this is the time to contribute as much as you can, even up to the maximum allowed if you are financially able. If your employer offers matching funds you should contribute at least the amount that will capture the full employer matching contribution.
In 2019, the maximum annual amount someone can contribute to an employer-sponsored 401(k) or 403(b) retirement plan is $19,000. Those aged 50 and older are eligible to contribute an additional $6,000 annually as a “catch-up” contribution.
You also can contribute $6,000 annually to an IRA. If you’re age 50 or older, you can contribute an extra $1,000 per year.
Think about long-term care insurance
In 2018, the average annual cost for long-term care ranged from $50,000 for a home health aide to more than $100,000 for a private room in a nursing home. It’s the equivalent of your kids’ entire college fund each year.
Like life insurance, premiums for long-term care insurance go up with age. And, you are more insurable in your late 40s and 50s than you are when you’re older. So, now is the time to investigate your long-term care insurance options.
Rubleski says there are two avenues to consider – a standard LTC policy, or a life insurance policy with a LTC rider.
A standard LTC policy is a stand-alone policy. You pay the premiums whether you actually use long-term care.
A life insurance policy with a LTC rider takes the cost of long-term care from your death benefit. For example, if you have a $500,000 life insurance policy and you use $100,000 in long-term care, your beneficiaries get $400,000 upon your death. If you don’t use long-term care, you maintain the full value of your death benefit.
Reduce or eliminate all forms of non-mortgage debt
When you’re on a fixed income, you don’t want to waste precious dollars paying down debt – especially debt that carries high interest. Rubleski recommends beginning a plan now to pay down debt, starting with the highest interest rate debt first.
Credit cards tend to have the highest interest rates of all the debt we carry. Pay those down first, then work on paying down installment debt – those with fixed interest rates such as auto loans or student loans.
Mortgages usually have the lowest interest rates of all the debt we carry. Once you pay off your credit cards and other loans, get to work on paying down your mortgage. It’s a great idea to pay extra on the principal each month – as much as you are able.
“Make it a goal to retire with no debt – even no mortgage debt. Your retirement dollars will last longer,” says Rubleski.
Of course, the key to paying down credit card debt is to resist charging them up again. See if you can use credit cards only for emergencies and pay them in full each month.
Some people use cash for discretionary items, to avoid using credit cards. The theory – if you don’t have the money on hand, you won’t purchase the non-essential item.
Test your desired retirement location before moving there
Maybe you want to retire somewhere warm, or you want to move closer to where your kids are. Before uprooting your lives and incurring the time and expense of moving, try living in your desired location for a month or two.
Rubleski suggests renting a place in your desired retirement location for a few months to find out if it suits you. You might find you want to be nearer to friends and family. You might find the cost of living is too high or the area doesn’t offer what you need to be happy.
This is a much less risky and less costly option. You may save yourself time, emotional stress, and many thousands in real estate transaction costs.
“Real estate is relatively easy to get into, but more difficult to get out of,” says Rubleski. “Test your dream, so it doesn’t turn into a nightmare.”
A bonus tip – The emergency fund
Emergencies happen even in retirement, from the unexpected car repair to the broken appliances. As you’re boosting your investment dollars and paying down debt, try to set aside some money for an emergency fund.
If you have a set amount that you are using to pay down debt, try taking half of that and putting it toward an emergency fund, until you have a few months’ worth of living expenses on hand. The goal is to accumulate 3 to 6 months of living expenses in your emergency fund. Keep your emergency fund in a safe place that is readily accessible like a bank savings account or a money market fund.
It’s hard work. But taking these steps now can make retirement much easier experience.
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