According to many financial planning experts, to make your investments last for the rest of your life, you can take 4% of your retirement nest egg as income to supplement Social Security each year. The Federal Reserve conducted a survey of consumer finances and found that people between 55 and 64 had an average retirement savings balance of $135,000.
A yearly income of $5,400 plus the average Social Security income of $16,104 equals an annual income of $21,504. If that doesn't seem like enough, there are some things seniors can do to make their financial future during retirement years more financially comfortable.
If possible, keep working until age 70
There are a few important advantages to staying in the workforce until age 70. If you retire in your early 60s, it's possible that your retirement nest egg will have to support you for 30 years.
According to a survey conducted by GoBankingRates, about 28% of Americans over the age of 55 don't have any significant amount of money set aside for retirement, yet. Those extra ten years in the workforce could give you the time you need to let your savings grow while you contribute as much as possible.
For some seniors, staying in the workforce in the same role throughout their 60s isn't realistic. A different job with fewer hours or smaller demands may be a better fit.
Remember, if you are in good health and can financially handle putting off drawing from Social Security until age 66, you'll get the full benefit amount. If you can wait until age 70, you'll get 132% of the benefit amount.
Take time to learn the Medicare enrollment rules
There's a seven-month window of time around your 65th birthday when you'll need to enroll in Medicare Part B to avoid the penalty. Not following this particular rule raises your Medicare Part B premium by 10% for every full 12-month period you delay signing up. The current Part B premium for most people is $134 per month.
Medicare Parts A, B, C, and D, all have their own set of rules. It may seem overwhelming but hitting the deadlines and understanding the options is crucial. Each state has its own State Health Insurance Assistance Program (SHIP) where you can get free counseling from a Medicare expert in person or over the phone.
Maximize cash flow
Many seniors worry about outliving their retirement nest egg, and building a bigger savings base is one way to relieve some of that anxiety. Even a fifty-year-old who commits to saving 15% of their annual $80,000 salary will have about $320,000 by age 65 assuming they get 2% raises each year and a 6% rate of return on their investments.
Catching up when you feel like you haven't accumulated enough savings may seem daunting, but it's possible with a combination of saving more and making more. Maximizing cash flow is important, especially in the years leading up to retirement. Many people develop an additional source of income in the form of a side gig or they decrease their bills to maximize cash flow.
For example, if you can reduce bills by $500 per month and make $500 more each month and save that money, you'll have an extra $70,000 to add to your nest egg after five years. If you can make this scenario work for ten years, you'll have $163,000. This assumes a 6% rate of return on investments.
Paying less money to the government in the form of taxes frees up cash you can add to your retirement nest egg. The best way to go about legally and safely minimizing your tax burden is to speak with a tax professional.
Let them know about your financial goals. A CPA that works with retirees will have a great deal of experience with how to handle tax issues as you transition into retirement. They'll also be able to talk you through future tax issues you'll face, like how the laws taking effect in 2018 and 2019 will affect your tax bill.
Create a realistic budget
In retirement, the budget and cash flow you lived with while working no longer applies. Even if you replace the paycheck from your full-time job with a combination of Social Security benefits and income from investments, your spending changes when you stop working.
It may not seem complicated to set up a budget for your new lifestyle, but during the transition into retirement and beyond, you'll have unexpected expenses.
Reorganize your savings
Consult your financial planner about the best way to create income from your retirement nest egg. Make sure your fees are low and consider consolidating accounts to make taking withdrawals simpler.
Depending on your tolerance for risk, you may want to move funds to slower-growing but more stable investments.
For many people nearing retirement age, it's easy to overlook assets that may help with a much-needed cash infusion. This is a great time to meet with a financial advisor to help you look closely at your assets.
Some people find that a large home is no longer necessary. Selling it and moving somewhere smaller and more manageable can provide cash to add to retirement accounts. It may also reduce ongoing living expenses, which allows retirement savings to stretch further.
A commonly overlooked asset is permanent life insurance. Families who needed a large life insurance policy for financial protection find that their permanent life insurance policy gets more expensive later in life. When the kids are grown and no longer depend on parents for financial support, having a large life insurance policy may be unnecessary.
Selling the policy through a life settlement is one way to get as much cash as possible out of the investment. Many people don't know that they have choices beyond cashing out their policy or letting it lapse.