There are many memorable financial milestones one achieves throughout their life—from opening up your first bank account to closing the deal on your first mortgage—all of these exciting stepping stones eventually lead to the pearly gates of your long-awaited retirement.
After decades of hard work and grinding, there’s no sweeter thought than being able to sit back, relax, and enjoy life to the fullest. But before you’re truly able to enjoy your waterfront sunsets and empty-scheduled days as a new retiree, you need to make sure your finances are perfectly aligned to allow you to live the retirement you’ve always dreamed of.
Whether you’re nearing retirement or you’re currently living it, there are a number of ways you can set yourself up for success for years to come. We’re here to give you the lowdown on the tips you should know about.
Tip #1: Capitalize on your employer’s 401(k)
A 401(k) is a retirement plan offered by employers to assist employees in saving for retirement. The contributions that are made to a 401(k) are tax-deferred, meaning the money is directly transferred from your paycheck before any income taxes are assessed.
For those under 50 years old, 401(k)s allow you to contribute up to $17,500 a year. For those over the age of 50, you can contribute up to $23,000. It’s important to note that this tip only applies to those who are still working and are employed by a company that offers a 401(k). 401(k)s usually only apply to working stiffs getting money taken out of their paychecks with an employer plan.
Tip #2: Perfect your budget
It’s easy to simply assume that you’re in good standing for retirement if you’ve had a retirement account growing for years or have an impressive savings account, however when you consider the fact that you’ll never work another day, is the money you have enough?
If you made disciplined efforts, the answer is probably yes, but if you’re not careful about your spending habits, you could find yourself scrambling for money just a few years down the road. In order to make sure you don’t blow it all in the first 365 days of your golden years, set a working budget.
Based on the bills you regularly pay and the unavoidable monthly expenses you can expect (i.e. gas, groceries, etc.), creating a monthly budget of how much you can spend to stay within your means is important.
Tip #3: Hire an experienced financial advisor
A financial advisor is a skilled professional who has carved their career around helping people like you understand your retirement. Committed to educating and empowering you with the right information, advice, and direction, a good financial advisor will help you best evaluate your financial needs and goals.
When hunting for an experienced financial advisor, you should come prepared with a list of questions that give you a comprehensive sense of the person you’re dealing with, their communication style, and how they’ll serve you as your personal advisor.
Here are a few questions that can help you choose the best financial advisor for you:
- Can you tell me about your experience as an advisor?
- What is your preferred communication style?
- How often do you communicate with your clients?
- How long have you been in this line of work?
- What type of clients are you looking for?
- How will I have access to you for questions?
Tip #4: Maintain your emergency funds
As a working person, your emergency fund best serves you as money to fall back on in the event of a costly or untimely emergency. In retirement, that emergency fund serves the same purpose. It’s always a good idea to have money set aside as “just in case” funds.
Additionally, don’t forget to set up a conservator to take control of your finances in the situation that you are unable to make financial decisions for yourself due to physical or mental inhibition. You will likely want to choose someone in good health you can trust to make decisions on your behalf should something happen to you, such as your children, nieces, nephews, or grandchildren.
Tip #5: Plan your travels ahead of time
There’s no better time to start ticking off boxes on your travel bucket list than your retirement. No matter where your desired destinations are, it’s always a good idea to plan ahead so you can save big and stress less. Whether you’re flying, driving, or taking a train, booking ahead could score you lower rates on transportation and accommodation.
Tip #6: Take advantage of tax breaks
Though retirement doesn’t make you exempt from your tax paying duties, it does offer a myriad of tax breaks that allow you to keep more money in your pockets. The IRS offers a number of senior and retiree-friendly tax breaks that reduce your overall taxable liability. Additionally, if you are still paying on your home, look into how applying to a reverse mortgage can save you hundreds each month!
Even though you’re not working, your social security and certain retirement plan funding will qualify as taxable income in the eyes of the IRS. However, the amount you pay come tax season will ultimately depend on your total combined retirement income.
For every year after you turn 65, the IRS allows you to take an additional standard deduction. Per the 2020 tax year, those filing as Single or Head of Household can add an extra $1,650 to the standard deduction. For those opting for Married Filing Jointly with one spouse aged 65 or older, your standard deduction increases by $1,300. If both you and your spouse are 65 or older, you’ll be able to increase your standard deduction by $2,600.
There are a number of other tax breaks seniors and retirees may take advantage of, so it pays to do your research before finalizing your annual tax return.
Tip #7: Retire in retirement-friendly states
There’s a reason why some states are far better to retire in than others. There are three primary factors you should consider when deciding where to live out your golden years: affordability, quality of life, and health care availability. Curious to know what the top ten states to retire in are? Check out this list that accounts for each factor:
- Florida
- Colorado
- New Hampshire
- Utah
- Wyoming
- Delaware
- Virginia
- Wisconsin
- Idaho
- Iowa
Living out your idyllic vision of retirement doesn’t have to be this far-fetched dream—it can be yours with careful planning, mindful spending, and an adventurous spirit.
Samantha Rupp holds a Bachelor of Science in Business Administration and is the managing editor for 365businesstips.com. She lives in San Diego, California and enjoys spending time on the beach, reading up on current industry trends, and traveling.
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