As you look toward retirement, you may be curious about the financial tools that you should be aware of. Retirees face a lot of financial burdens in retirement — from making up for the decrease in income from the days of your career, to looking forward to the next steps in life and how to plan for your children and grandchildren’s future.
And it’s no secret that many American retirees face significant financial burdens in retirement. Though most financial experts recommend saving between $1 and $2 million for retirement, the average retiree has only saved around $95,000.
That makes knowing about key financial tools even more important. In this post, we’ll cover some of the financial tools every retiree should consider as they plan out their post-career life. Read through to find out how each works, and how it might apply to your life.
One of the easiest ways to bulk up retirement savings, and increase the amount of money you have available when you leave your career, is with an investment account. Investment accounts come in a few different shapes and sizes, and can vary widely depending on your time frame for investing as well as your tolerance of possible risk.
Chances are that you already have an investment account if you’re thinking about retirement. 401ks and IRAs work by allocating your assets into a combination of stocks and bonds, usually designed to increase long-term growth while minimizing your risk. These are excellent options for those just early or in the middle of their careers, as they can help you start to seriously accumulate wealth over the long-term.
However, even if you’ve recently retired, keeping money in an investment account can be a continued source of income. A typical savings account might offer interest at a rate of less than 1% — and even high-yield savings accounts top out around 1.75%. Many investment accounts offer consistent returns closer to 10%, and investing through a brokerage that offers index fund accounts can help you secure a higher, more consistent rate. While this isn’t a one-size-fits-all solution, it can certainly help money last longer.
Estate planning options:
Planning your estate is an essential part of retirement. After a lifetime of hard work and dedication to your family, you want to pass something on to them that they will benefit from, as well as remember you by. Estate planning can be difficult, in part because it’s technically complicated navigating trusts and wills and other vehicles for passing your assets on to the next generation, and in part because it’s an emotionally difficult subject for many to consider.
That’s totally valid, and if you need to speak with family or with a professional to navigate the complex emotions of setting up your inheritance, you definitely should. However, it shouldn’t just be avoided. You want to be sure that you plan so that your family can benefit as much as possible from your life’s work, and making a plan to pass on your estate is crucial for that. Luckily, estate planning professionals can walk you through the necessary steps, and make it much easier to get your affairs in order before your passing.
One controversial financial tool that some financial experts will occasionally suggest is a reverse mortgage. Reverse mortgages are basically what they sound like: a mortgage, but in reverse. They allow retirees to stay in their homes while the bank, or a reverse mortgage agency in many cases, pays them for part of the value of their home.
The benefits are that retirees can stay living in their homes while receiving the benefits from the reverse mortgage. It provides supplemental income without the disruption of a full-on move. And, for retirees who own property but don’t want the hassle of having to sell it, it can be an easy and comfortable way to fund everything from retirement recreation to medical bills.
There are two big downsides to reverse mortgages that are worth considering, though:
- You probably will not get as much for your home as you would if you were to sell it. Kind of like trading in your car instead of selling it, going with the surefire option means you’re not going to get as much as you potentially could by going for the riskier bet.
- You won’t be able to pass it on to your kids. This may seem obvious but it’s worth stating: by selling your house to a mortgage agency or bank, it’s no longer yours. So that’s a big chunk out of any inheritance you may have hoped to pass along.
If you do decide to seriously consider this route, be sure to meet with a professional financial planner, as well as with your heirs, before signing on any dotted lines.
Another real-estate tool retirees can use to help fund their retirement is downsizing. Downsizing works like this: you sell your home and purchase a new one that is smaller and more inexpensive, which frees up the difference between the selling price of your old home and the cost of the new one.
This has the potential to make tens of thousands if not hundreds of thousands for retirees, and is certainly worth considering if you want to still have property to leave for your heirs, but also need to leverage the equity from your home to help cover retirement expenses. Selling your home is stressful and difficult, but the money earned from the transaction could mean the difference between struggling to make ends meet in retirement, and easily being able to cover bills while still having money left over to enjoy yourself.
Lastly, for those retirees who are still focused mentally and physically capable of working, an encore career can be a fruitful option with many benefits. Having an encore career can mean a variety of things, mostly depending on the nature of your career pre-retirement. For some, they may be able to cash in on lucrative consulting and advising arrangements, providing as-needed help to young professionals and small businesses in the field from which they retired. For others, it may be something simpler, like selling a craft online, or helping out the local church with events.
Whatever financial tools you discover are best for you, it’s important to keep your options open. Retirement funding is difficult, but by exploring every path, you’ll be more likely to find the financial tool that works best for you.