Retirement is when you quit your job or cut back on the work you do so that you have more time to relax. Or you may have to quit working for health reasons. Either way, you stop living off the income you earn and start relying on the savings and income streams you have available to you. If you’re not financially ready, you may live in poverty or have to find ways to pay the bills though you want to travel or spend time with the grandkids. Here are the best tools to help you plan for retirement.
Debt Calculators
Debt payments are a major financial burden and servicing your debt load could prevent you from retiring. Another alternative is finding ways to lower your debt payments. You can use financial calculators to determine how much you could save per month by refinancing your mortgage or car loan. On the other hand, you may want to get on a tight budget now and aggressively pay down your debt. The sooner you eliminate a debt payment, the sooner you can live on less. For example, it is better to work a little longer and pay off the mortgage than refinance it and continue paying it after you quit working.
If you’re currently in debt and going deeper into debt, you may need to talk to a financial counselor. Refinancing debt and selling assets may help, but this suggests you need to make major changes to your lifestyle. And selling a luxury car or cutting back on shopping and eating out may not be enough.
Retirement Savings Calculators
There are several sides to the retirement savings equation. This includes how much you can save or have saved, the rate of return on the money, any other income streams coming in like pensions and Social Security and the rate at which you take money out of your savings. Retirement savings calculators are essential to understanding the difference in how much you have to life of each month if you get a 4 percent rate of return on the money versus 2 percent.
Take all of your revenue streams into account. What pensions might you be able to get? How much will you get from Social Security? Note that a couple may be able to collect two Social Security checks. Do you have money in old 401Ks and IRAs? On the other hand, you don’t want to base your budget on the mere hope that your adult children will pay rent or that your hobby will turn into a profitable business. Be conservative with your income projections, because the worst that could happen is that you have more money than you planned. Then you can spend more on fun activities or give more to charity.
Don’t make the mistake of overdrawing your retirement savings. If you spend too much in the early years of retirement on travel or gifts to family, you may not have money to live off of when you’re approaching the end of life. This often happens because people assume they will get 8 to 12 percent rates of return on their retirement savings, though the money is invested in safer investments. Yet many people run out of money in retirement because they leave the money as cash in a savings account, so they’re losing money to inflation as well as spending the balance down.
The best retirement calculators allow you to estimate your income stream even as you draw down on the account or shift to more conservative investments over time. However, only a financial planner can tell you what the most likely rates of return would be and which accounts you should spend down first to minimize your tax bill.
Budgeting Tools
Your projected spending will probably change once you quit your job. Your income will probably fall, but so will many of your expenses. Commuting costs are eliminated, though some make up for it by traveling extensively. You don’t have to buy work clothes, though some increase their spending on entertainment and eating out. Your tax rate will probably be lower. If you’re over 65, your property tax bill will probably freeze or remain constant from there on. Healthcare costs often go up.
Budgeting tools help you determine how much money you need to live off of, though you should consider lifestyle changes if there is a shortfall between the income you can rely on and the money, you’re spending every month. For example, you may not be able to afford staying in a large, empty family home if you can’t afford to maintain it. This is why many people sell the family home and move into a smaller place when they retire. A side benefit of this is that they can take the cashed-out home equity and add it to their financial nest egg. Or you could get rid of your two cars. On the other hand, some people take out a reverse mortgage to pay for their living expenses and medical bills, since this allows them to continue living in the home.
Don’t forget to take medical costs into account. For retirees, you’re going to have to pay for things like glasses, assistive devices, and more frequent doctor’s visits. You need to plan for long-term care, as well. If you’re married, the odds are that at least one of you will spend a year or more requiring some sort of care. And you cannot assume that the other spouse can do it all. You might want to add long-term care insurance premiums to the budget, or you may want to set aside a large chunk of money to pay for care. Don’t expect Medicaid to pay for your nursing home care. That is only intended for the truly indigent, and they can take most of the assets your surviving spouse has if you claim it but didn’t really need it. You can face fraud charges if you transfer your house to your children in order to give it to them instead of selling it to pay for your care.
Summary
There are a number of tools out there to help you plan for retirement. Use them today so that you can make the necessary plans to prepare for tomorrow.