When you are working towards retirement, you may have a detailed plan on how to manage your finances so that you have enough saved by the time you leave the workforce. Since you will no longer have external income coming in, you will need to adapt how you manage your retirement earnings, expenses, and investments so you can live comfortably. Therefore, financial literacy is crucial, and the following basics can help you achieve your dream retirement.
In retirement, you start to pay yourself with money you saved and invested throughout your career. This money may come from employer-sponsored retirement accounts, individual retirement accounts, and Social Security. It is essential to understand your sources of income, how much is in them, how much you’ll be getting from them, and the best time to access each of them. For example, you are eligible for Social Security from age 62, but experts suggest waiting until age 70 as benefits will be higher due to delayed monthly credits.
How much you choose to earn is up to you, but it is recommended that you shoot to earn 80% of your previous income by utilizing multiple income sources. You should also be aware of how your sources of income are affected by unforeseen taxes in retirement. Overall, the timeline for utilizing different sources of income will require a comprehensive plan based on your financial situation, assets, and goals.
Spending wisely is the key to retirement longevity and is dependent on your lifestyle and earnings. If you plan to lead a similar lifestyle to that of your pre-retirement days, you can predict how much you’ll be spending in your day-to-day life. However, in retirement, there may be new additions like hobbies and habits that should be financed, or big purchases like homes and cars, or even major financial decisions like relocating or traveling regularly. You may also have home mortgages and car loans to pay off or an obligation to financially support your kids’ and grandkids’ education. All these costs need to be factored in when thinking about spending.
The most under-planned costs in retirement are healthcare and long-term care. You can only receive Medicare from age 65, and that will not include long-term care. In addition, Part B, which covers your regular doctor visits, is not free! Therefore, when thinking about expenses in retirement, it’s beneficial to prioritize your health and long-term care as early as possible.
Understanding earning and spending in retirement are the first steps to financial literacy, empowering you to take control of your future. To gain further insight into your finances in retirement, sign up for a complimentary review with us.
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