Financial planning can become a daunting task as you enter retirement. For many, retirement comes with added financial difficulties like living off a fixed income, managing debt and using services put in place specifically for seniors.
This comprehensive guide offers helpful information and advice for navigating your finances as you age and will help you organize, plan and prepare for the future. Read on to learn more, or click the through the menu below to find out what you’re interested in.
Organization is key to managing finances, particularly in retirement. After retirement, you will likely live off a relatively fixed income. This means you’ll need to have a stable budget in place and all financial decisions organized in order to maintain your current lifestyle.
To help keep track of your important financial information, consider keeping a notebook or folder. Writing down important financial information can help you record your finances during retirement and help your family locate it in an emergency.
If you decide to create a notebook with your important financial information, consider letting a trusted relative or friend know where you plan to keep it. If you forget a piece of information or in case of emergency, having a trusted person be able to locate your notebook will be helpful.
Other ways to organize your financial information include:
The Boston College Center for Retirement Research has studied the effects of cognitive aging on an individual’s capacity to personally manage their finances. In a 2017 brief, they concluded that:
To prepare for the possibility of cognitive decline, it’s important to take certain steps to protect yourself, your family and your finances. Always communicate with your family about your finances, consider using a professional financial consulting service and discuss the possible need for a Power of Attorney.
There are many resources and services available for seniors in need of expert financial assistance. One of the most important decisions to be made in regards to financial management for seniors concerns a Power of Attorney (POA) document. This document allows an individual, usually elderly, to select another trusted person to act for them when managing their finances.
A Power of Attorney is helpful in allowing a senior’s individually owned assets and finances to be maintained by someone with better ability to make financial decisions. POA documents can be written to become effective immediately, meaning they are not unreasonably difficult to obtain and can help get a senior help quickly.
When creating a POA document, there are three main parties involved:
The principal party is the individual giving up power. They may also be referred to as the grantor or donor. In this context, the principal is the senior in need of financial assistance.
The agent, or person receiving power, is the individual who will assume responsibility for the principal’s finances. Any adult can be appointed and in the context of aging, typically falls to the adult child or other relative of the senior giving power.
Finally, the notary public is the licensed official who serves as a witness to the transfer of power. They are typically authorized by a state government and are a required party to the creation of a POA document.
It is important to note that while legal counsel in the creation of a POA document is not necessary, it may be helpful in ensuring the best decisions are made surrounding the transfer of power.
Creating a Power of Attorney document is a proactive way to manage your finances as you age. However, be careful to build the contract appropriately and willingly.
Here are some tips to help you understand, create and use a POA for your finances:
There are many services available to help you organize and plan your retirement life. However, there are steps you should take to be sure your finances fit into your future goals for retirement like travel, investment and helping family.
In your retirement years, you rely on a lower income than you did in your earning years. To make your nest egg last, it can be helpful to create a detailed budget and stick to it.
To begin preparing a retirement budget, you should collect recent bank statements, credit card statements, pay stubs and tax returns. These will be helpful in determining how your expenses will be covered.
Next, list any expenses you plan for on a monthly basis as well as a small fund for emergency use.
Expenses to include in your retirement budget may include:
Calculating your monthly budget can be done by simply subtracting your total monthly expenses from your monthly income. If you’re unsure how to create a budget or would prefer to have a professional help you, there are many ways to make sure your budget accurately reflects your retirement lifestyle.
There are also many resources available to use as templates for budget creation.
Here is an example of a simple monthly budget for a retiree aged 65 who plans to live in retirement for twenty years. With a monthly budget goal of spending no more than $3,600, he should expect to spend no more than $43,200 annually and no more than $864,000 over the course of his twenty year retirement.
Retirement is not always as simple as you might think. Often, new retirees are shocked to find out that the cost of retirement may be more expensive than planned for.
To budget exactly how much you’ll need for a comfortable retirement, you’ll need to understand your likely retirement expenses. It’s safe to estimate on the high end for all expenses. Along with what you think you’ll spend, you should plan to have additional money set aside in case your expectations are wrong. Don’t plan to spend much less than you do now.
There are a few questions you should ask yourself before you begin budgeting for retirement.
Determine what your monthly expenses will be by considering things like health care and insurance, travel, housing, auto loans and any other miscellaneous costs.
Developing a spending plan can also help curb unnecessary costs and keep your spending habits in check while helping you save for unexpected situations. There are many easy ways you can cut down on your expenses without putting a dent into your comfort.
Consider some of the following methods for decreasing your monthly spending:
Additionally, you should consider the cost of living in your state. The average cost to retire comfortably varies greatly across the states, so it may be helpful to consider moving if you’re worried about funds.
Here are the yearly costs to live comfortably in each state, ranked from least expensive to most.
| Rank | State | Yearly cost | Rank | State | Yearly cost | |
| 1 | Mississippi | $37,750.00 | 27 | South Dakota | $49,344.00 | |
| 2 | Arkansas | $38,896.00 | 28 | Oregon | $49,678.00 | |
| 3 | Alabama | $39,170.00 | 29 | Wyoming | $50,409.00 | |
| 4 | Oklahoma | $41,223.00 | 30 | Pennsylvania | $51,108.00 | |
| 5 | South Carolina | $41,583.00 | 31 | Montana | $51,505.00 | |
| 6 | Kentucky | $41,610.00 | 32 | Virginia | $52,040.00 | |
| 7 | Idaho | $42,066.00 | 33 | Illinois | $52,215.00 | |
| 8 | North Carolina | $42,224.00 | 34 | California | $52,284.00 | |
| 9 | Louisiana | $42,726.00 | 35 | Rhode Island | $53,068.00 | |
| 10 | Tennessee | $42,774.00 | 36 | Colorado | $53,310.00 | |
| 11 | West Virginia | $42,023.00 | 37 | Delaware | $53,585.00 | |
| 12 | Arizona | $43,225.00 | 38 | Washington | $53,653.00 | |
| 13 | Georgia | $43,321.00 | 39 | Maine | $53,776.00 | |
| 14 | Utah | $43,893.00 | 40 | Minnesota | $54,913.00 | |
| 15 | Indiana | $44,541.00 | 41 | Maryland | $55,935.00 | |
| 16 | New Mexico | $44,624.00 | 42 | Hawaii | $56,404.00 | |
| 17 | Kansas | $44,980.00 | 43 | New York | $58,633.00 | |
| 18 | Nevada | $45,221.00 | 44 | Vermont | $59,560.00 | |
| 19 | Texas | $45,671.00 | 45 | North Dakota | $60,281.00 | |
| 20 | Iowa | $46,256.00 | 46 | Connecticut | $60,621.00 | |
| 21 | Ohio | $46,811.00 | 47 | New Hampshire | $61,013.00 | |
| 22 | Missouri | $46,908.00 | 48 | New Jersey | $61,215.00 | |
| 23 | Florida | $48,305.00 | 49 | Alaska | $61,934.00 | |
| 24 | Wisconsin | $48,485.00 | 50 | Massachusetts | $64,976.00 | |
| 25 | Nebraska | $48,713.00 | 51 | Washington DC | $71,054.00 | |
| 26 | Michigan | $49,165.00 |
Many seniors find themselves in retirement with difficulty maintaining their lifestyle. If you are struggling to find a way to continue saving money, some of these options may be helpful:
With retirement often comes the need to change aspects of your financial management. Many banks offer special services for seniors and retirees.
Your banking services should help you plan for future medical costs, everyday spending and everything else you need to live comfortably in retirement. Proper management of these services can help you maximize the benefits you receive from your bank and potentially increase your overall savings.
There are many ways to streamline your banking and financial services and capitalize on the opportunities your financial institution offers you as a senior. Here’s some things to ask about the next time you visit your bank or financial service:
After years of helping family, some seniors are at risk of carrying heavy debt loads into retirement. Additionally, moving to a fixed income plan can make it even more challenging to balance debt payments and stay afloat.
Some seniors may turn to credit to help fund an unexpected expense like a medical emergency. Before making a purchase with your credit card, consider whether you’ll be able to pay the balance in full when the statement arises. Remember: even small expenditures can add up to big credit card bills.
Here are some steps you can take if you find yourself in credit card debt:
It’s important to consider the way your debt will impact your family after you are gone. Even if you leave your family with a large estate, your personal debts can diminish the estate’s value. Any debt you owe at the time of your death is paid off using the money in your estate. If there is remaining money in your estate, it will then be distributed to your beneficiaries. Debts paid off first by your estate include funeral expenses, taxes and secured debts. Next, your estate pays off unsecured debts like credit card bills. If your estate doesn’t have enough money to pay off all debts, the remaining amount owed is waived.
Financial fraud and scams are the most dangerous threats to seniors in regards to their finances. Always be cautious when giving out personal information and take the steps necessary to prevent scam artists from hurting you and your family.
Financial fraud affects people of all ages, but seniors are particularly at risk for identity theft and financial scams. Scam artists know that senior citizens are more likely to have accumulated wealth and other assets than younger adults, so they may target seniors exclusively.
There are “red flags” to look for when entering into a financial agreement or hiring a new financial consultant. Watch out for these indicators with every financial decision you make.
It is possible to avoid and prevent damage caused by financial fraud. Take these steps at all times to protect yourself and your family from fraudulent activity:
Your estate is your gift to your family after you pass. Though discussing your death and time after you’re gone is difficult, planning for your passing can help your family better navigate the emotional stress of loss and will ensure you continue to provide for and protect your family, even in death.
End-of-life planning is a topic most people prefer to avoid. It can seem grim and even scary for some. But to protect your assets and your family, it’s crucial to have a formal document pre-written for your death. Preparing a will helps take care of your loved ones financially after your death and can save them the emotional stress of legal difficulties after you’re gone.
If you do not yet have an existing will, you’re not alone. A 2017 study showed that only 42 percent of American adults have a planning document such as a will or living trust. Luckily, there are many services that can help you write a will. Attorneys and even online software are excellent resources to help you create the document. Enlisting the help of experts is the best way to be sure your will adheres to all the legal requirements necessary for such a document and makes it easy for your loved ones to collect their assets after your death.
It is legal, though much riskier, to write your own will. There are resources available to provide instruction on drafting a will from scratch. Be sure to follow the necessary guidelines and requirements in order to create a legally acceptable will.
If you are unsure which option to choose when you’re ready to create your will, consider the consequences of both choices. If you know your assets and portfolio at the time of your death will categorize you as middle class, using an estate software or simple legal service may suffice. However, if your assets and portfolio are considerably large, an official estate attorney may be necessary to properly protect your assets.
Here are several things you’ll need to include in your will, regardless of whether you hire professional help or do it yourself:
The loss of a spouse or partner is consistently listed as one of the most painful life events a person can experience. The period of time following a loss of this magnitude comes with a wave of intense emotion and difficulty. Financial challenges after the loss of a spouse can make life even more difficult for the surviving partner, especially if that partner was not used to managing the money.
Ideally, both partners in a relationship have basic knowledge of financial management. If this is not the case, however, make time to communicate with your spouse about what should happen in the event of a death.
Here are some of the ways you and your partner can easily plan ahead:
These are not easy topics to discuss with a loved one. But they will save your spouse additional pain if they survive you and must carry on alone. Helping each other prepare for end-of-life matters is a necessary step and shows your dedication to each other’s wellbeing.
There are many ways you can continue to help support your family even after your death. These systems already in place make it easy to help the next generation:
Setting up a 529 plan for a child, grandchild or other young loved one is a practical way to continue caring for them as they grow. Additionally, you’ll be helping to guarantee their access to quality education.
However, you should always be cautious in your contributions to others. If a loved one is struggling financially, it is tempting to open your wallet to them. But avoid overfunding a loved one as it can put serious strain on your own finances. It’s important to protect your money, even when helping your family. Your goal should be to maximize the funds you’re able to gift them at the end of your life. Until then, you’ll need the money, too.
Give the gift of education to your family by teaching them the importance of financial knowledge and planning. Creating a future generation of intelligent savers, investors and consumers will help to improve economic health and lead to fuller lives for your future family.
As a mentor and role model in the lives of your younger family members, you can have a profound impact on the financial education of the next generation. Self-control, basic mathematics and consciousness are all teachable skills that you can impart on your children and grandchildren.
Other financial lessons you can give to children include restraint and patience during a purchase process, choices about how to spend money, how quickly to begin saving and the basics of credit. A 2017 study suggested that children who are allowed to manage their own money from a young age are more likely to have better financial habits.
You can help your young family members begin understanding the concept of saving by giving letting them practice money management. Give them a small allowance each month until they have enough to pay for something on their own, perhaps a bicycle or toy they’ve been eyeing. Letting them decide whether to spend or save allowances will give them hands-on experience with money and help them understand that money is a privilege and not a guarantee.
Imparting your own wisdom and personal experience on your children and grandchildren is one of the greatest gifts you can give them. Your influence and guidance can help raise a new generation of consumers who are even more intelligent and mindful with their money.
If you’re struggling with credit, debt or financial decision-making, there are many resources available to help you make the right choices. Ask a family member for help or consider using a professional service to put you on the right track to financial success in your retirement.
Planning for retirement can be a difficult task. There are many decisions to make and limitless options to choose from. But preparing for your retirement and senior years will significantly impact your ability to live the lifestyle you want.
Whether you plan to travel the world or enjoy treasured time with family, we hope this guide has given you useful information and will help you put financial plans into place, execute them and achieve your financial goals.
Sources
Center for Retirement Research | Paying for Senior Care | FINRA | The Balance | FDIC | SEC |
U.S. News – Money | Go Banking Rates | Social Security Administration | NBC News | Caring |
Bernard Osher Foundation | The Washington Post | Rogers & Associates | New York Life | Mint |
Saving for College | Forbes | T. Rowe Price
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