It may be something you have been trying to forget about but soon enough it may be time for you to retire.
This can be a scary period and you may be wondering how you will be able to maintain your current lifestyle when your income drops dramatically.
All the same, it can also be exciting. If you prepare properly you can spend the rest of your life relaxing and enjoying new experiences.
To help you to figure out how you can prepare for retirement and enjoy the lifestyle you want we have prepared this simple guide.
Getting Ready for Retirement
- Its never too late to start a pension
Hopefully at this stage in your life you have managed to start a pension. If not, you should try to start one straight away.
There are many different products out there, nearly all will be linked to the stock market. These investments grow slowly over time with the returns building steadily each year.
As your starting a little later you will not be able to benefit from this growth over a long period so its important to make as large a contribution to the scheme each month as you can.
If you have to make sacrifices to do this, then do, these investments and products often have tax benefits so your saving money and saving on tax!
Its important to take professional advice when starting a pension later in life. Do you really want to be investing in high risk stocks with only 5 years to retirement?
Tread carefully and invest what you can.
This is not the time to hesitate, if you have not started yet, get started now. It’s the most important thing to do when preparing for retirement.
- Read the small print
You have a pension plan already? Great! What are the costs of your current pension plan? If you don’t know you really need to find out.
Each pension plan will have an Investment Manager and they charge the plan fees or have their fees embedded in the pension product you have purchased.
There can be HUGE differences in the fees charged by Investment Managers. Some will charge as little as 0.1% but some others will charge 1% or even 2%. You could be paying ten times as much for the same service!
Would you pay $100 to have your car washed if another company would do it for $10? of course not so do not do the same with your pension. Check the fees!
In some cases, your current pension provider may really want to keep your business so like everything in life you may be able to negotiate a better deal.
The fees you pay can have a very big impact on how much you will have to live on for the rest of your life.
But wait:
3. Not all pension products are the same
You may find out that one Investment Manager is charging your scheme a 1% management fee and another 0.2%, what a saving!
This may seem great, but they may be providing a different service. Some fund managers just buy the biggest stocks in the market simply because there the biggest, others try to pick stocks that will perform better based on their own expertise.
The jury is out as to which strategy is better in the long term but bear this in mind when you’re asking your Fund Manager about their fees.
If they have an awesome track record and have consistently delivered better returns, then maybe they are worth the extra money.
Its hard to know but do your research and make an informed decision. Take multiple viewpoints and go with the option that is the best for you.
But here’s the deal:
- Take the Tax Benefit
If you’re still working your employer may operate a pension plan. In the United States the traditional option is the 401(k) plan.
In most cases you employer will offer to contribute to the scheme based on what you contribute, they may even match your contribution.
It is important that you make sure that your contribution is at least enough to take full advantage of this benefit from your employer.
This is not only important from a savings point of view but in many cases the contribution you make can be made from your pre-tax income. This means that you’re not only saving cash but saving on tax too.
Depending on where your living there may also be other tax efficient savings products available to you. If there is you should try to contribute as much as possible. You have paid enough tax over your working life.
Its time to take a little back. You’ve earned it.
Cutting Costs is Important Too
- Could you Downsize
The home your living in may have been perfect for you 30 years ago but is it still right for you now. Sure the kids may visit from time to time but do you still need those 3 spare bedrooms?
It can be really difficult to even consider selling your family home and trading down to something smaller but its potentially a great idea.
You will not only have a lump sum to assist you in your retirement, but you will cut your living costs too.
A smaller home costs less to heat, less to insure and less to run generally as there is less to break.
The money you raise from doing something like this can be used to enhance your quality of life. A large home is no good if you have to compromise the quality of your life to maintain it.
Its not something everyone can do but if you feel that the cash you can raise is worth more than the feelings you have for your home then this is something you could seriously consider. Don’t let the emotional connection you have with your current home get in the way of a sound financial decision.
One of your kids may wish to buy the house from you. If they don’t, don’t feel you have to keep it for them. This is the time in your life when you have to look after yourself, make the choice that’s going to give you a better quality of life.
And another thing:
- What about Florida?
If your selling your home to cut costs do you really need to buy somewhere in the same town or state?
You may not like to hear this:
The town you have lived in for the last thirty years may be great, but will it meet your future needs? Wouldn’t it be great to live in a place where summer lasts all year around?
Moving location can be great for you tan but also your wallet too. A warmer climate can cut your heating bills and maybe even your medical bills.
You have the option of even living in a gated community where things like maintenance of your property can be taken care of with a single annual payment.
In addition to this locations that are further away from big cities generally have lower property prices. You can sell your home and use the surplus cash to really enjoy your retirement.
If your personal life allows, its an option you should consider.
Don’t limit your search to just this country either, when you retire the whole world is your oyster!
When retirement gets close
- Now is not the time to take risks
So, you have been paying into a pension plan for 30 years, great! But what exactly have you invested in?
The vast majority of pension products will be heavily invested in stocks. Over the long-term stocks have been shown to offer solid returns so this makes sense.
However, in the short-term stocks can move up and down in value a lot. Coming up to retirement you don’t want to take on the risk that your pension fund will lose a lot of its value.
This is the time to take professional advice. There are many other options out there for your pension fund to invest in. These include things like bonds and even good old cash.
The value of these investment types can move up and down a lot less than stocks, so you are potentially reducing the risk that your pension fund will drop in value a lot before retirement.
But wait!
This may not be everyone. You may have other assets or you may be happy to take on a lot of risk to ensure that your pension fund is worth more at retirement.
This is a very personal choice but its one to think about a lot.
- Adjust your living standards now
It’s a given that during your working life you have budgeted in order to manage your income. You have taken your income, worked out your expenses and acted accordingly.
When you retire your income will drop, you probably know at this stage how much you will have to live on when you retire.
Its important to start to reduce your day to day living expenses now. This is so its not too much of a shock when you retire.
Cutting your expenses now will also give you a little more room to save so that you will have that little bit more when you retire.
This means that you will know exactly what you have coming in and going out each month. It may be the time to downgrade that cable TV subscription or review your current health insurance plan.
Still supporting your kids financially? STOP! At this stage in our life you should not still be giving your kids hand outs. They will need to adjust to your reduced income and its time they got used to it now. It may be difficult to do but its time to do it now.
- Climb that debt mountain
Over the course of your life you have probably had to take on some debt. Some of it may have been for productive purposes but some may have not.
Now is the time to climb that debt mountain and get on top of any debt you may have. You don’t want to have to make repayments on anything when your income starts to fall.
If you still have mortgage payments try to increase the payment amount to pay off any outstanding balance more quickly.
If you have any other higher interest debt you must pay that off now. Not only will you have more money left over at the end of the month but you will get used to adjusting your spending habits before you retire.
Remember when you retire it will be very difficult to get credit to you should start to get used to that new way of living now.
You Don’t have to stop
- Retirement and work
Once you retire from full time work you may not have enough to live on. This can even happen if you have been saving hard for 30 or 40 years.
Lots of things could have happened, you may have had to reduce your contributions for a number of years or your investments my not have done to well.
There is always the option to work part time if you need to when you retire. There is a whole new economy out there now that wasn’t there when you started working.
You can use sites such as Upwork to win freelance work in a wide range of areas. Work part time in your own home with no boss. It keeps you busy and provides you with that additional income you may need.
At this stage you probably have decades of experience. This is a very valuable commodity and you should make the most of it.
A lot of employers now are even seeking out more mature workers. There reliable, experienced and know the value of hard work.
It’s a sellers’ market, get out there!
The tips in this article don’t cover everything you need to do to prepare for retirement but hopefully they have been some help to you.
Get started now and get ready for a long and enjoyable retirement.
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