Retirement can be a very liberating time in a person’s life. It’s when you reap the rewards of years and years of hard work, and become free of the weight that comes with working every single day. There’s no need to face the daily pressures of work: of meeting deadlines, chasing after clients, pleasing superiors, or making your way through heavy traffic just to get to the office on time.
But retirement can also come with its pitfalls. The sudden lack of a steady monthly income can be quite a difficult change for many new retirees. Without a steady paycheque, retirees have to make sure their savings can last through their retirement years. This change can not only affect the daily management of money, but larger, more important aspects as well such as the ability to take out loans.
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| Retirement Source: Tax Credits, cc-by-3.0, flickr |
Building a Solid Base for Retirement
With such difficulties lying ahead, it’s crucial to be able to manage your finances well throughout retirement. And the best way to start is to build your retirement savings wisely and sufficiently years before.
You begin by defining your retirement needs and goals. Consider the lifestyle you want to lead, your life expectancy and how long you plan to stay retired. These factors will dictate how much you should aim to save for your retirement. Consider your most possible health needs and requirements, the largest of your most probable expenses, and make sure you prepare aptly for these. Consider also possible inflation rates, investment ups and downs and possible alternative sources of income.
Most, if not all financial advisors will tell you not to put all your eggs in one basket, and for your retirement fund it would be wise to heed their advice. Aside from investing in a 401(k) plan or a similar retirement account, you can spread out your investments to include real estate, stocks and many others.
And while you’re building it up, as much as possible, refrain from borrowing from your retirement fund. This can result in added taxes and the prevention of tax-deferred growth on the amount borrowed. Taking out a loan from your retirement fund may also suspend contributions for a certain period of time; and in some cases, it can be considered a prohibited transaction. If you are in need of a loan, it would be wiser to approach lenders than to put your retirement fund at risk.
During Retirement
After the dust has settled and you’re in the thick of retirement, it’s time to make the most of your retirement fund. Here are some tips to help you do just that:
- Have a fixed budget. Making a fixed budget and sticking to it is one of the most critical steps to managing finances at any age; and it is particularly important during retirement when finances are more limited than they were previously. List down all of your expenses, including your leisure expenses and make sure that these do not go beyond your monthly allocation.
- If your expenses seem to exceed what you currently have, consider rethinking your expenses or switching to more aggressive investment options that guarantee returns.
- For big splurges, emergencies or unexpected payments, retirees can always take out loans. There are plenty of lenders that offer various unsecured personal loans that don’t have strict policies or excessive requirements for retirees. But for larger payments, such as mortgage, retirees may find it more difficult to qualify. In cases like these, you may use imputed income from your retirement fund to supplement your income and help you qualify for a mortgage loan.
Get some help. Unless you are a financial advisor yourself you cannot be totally sure of all the financial decisions and investments you make. Get an estimate on how long your savings will last and of your life expectancy through online calculators. Read up on money management and investment options, and get the help of a financial advisor to create a solid retirement financial plan.
About Author:
By Debra Wright
Debra Wright is a creative and innovative blogger and online marketing specialist. She uses her wordsmith skills to share her ideas, thoughts, and tips to other people about topics that fascinate her, such as money management. Follow Debra on twitter @debrawrites
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