Finance Blog

5 Financial Tips to Plan for a Comfortable Retirement

The word “retirement” probably sparks some excitement within you. Although you are likely counting down the days until you retire, you must do some planning before you officially sign off from the workforce. If you plan to live out a long and healthy retirement, you must sit down and begin planning out your financial goals and how you can meet them.

According to Investopedia, 22% of senior citizens retire will less than $5,000 in their bank account, while 15% of seniors retire with no savings at all. If you do not financially plan out your retirement, it may not be as enjoyable as you imagined. So here are five financial tips to plan for a comfortable retirement.

1. Consider future healthcare costs

If you are retiring at the age of 65 or older in the United States, Medicare will be your health insurance. Medicare covers inpatient and outpatient services and provides a substantial amount of coverage. However, Medicare will leave you with out-of-pocket costs. For example, seniors who are 65 and older will spend an average of $6,833 a year on healthcare, according to the Bureau of Labor Statistics.

Healthcare expenses often do not cross senior’s minds whenever they enter retirement, which can lead to financial problems in the future and potentially lead to debt. If you live out a long life, you will need a substantial amount of money saved for healthcare expenses. A common way to save for healthcare expenses is by having a health savings account through your employer, which we will discuss next.

2. Have a health savings account (HSA)

It would be beneficial if you set up a health savings account with your employer years before you retire. To have a health savings account, you must be enrolled in a high-deductible health plan. This savings account is non-taxable and can be treated like a 401(k), but solely for medical expenses.

A health savings account will be useful to put towards your deductibles or if any other out-of-pocket expense comes your way. There are other benefits to having a health savings account, such as tax benefits. For example, the money you put in your health savings account will grow tax-free, and you are not taxed when you withdraw money to put towards your medical expenses.

The best part about a health savings account is that it is 100% yours, and the money rolls over from year-to-year. You should speak with your employer about their high-deductible health plans so you can begin contributing to a health savings account before you retire.

3. Create a retirement budget

A common fear many seniors have is running out of money during retirement. If you were to create a retirement budget, you could avoid this fear by having a plan. You must take time to calculate your reoccurring expenses to come up with the number of how much money you can afford to spend and save monthly.

When calculating your budget, you must include credit cards, groceries, utilities, phone bills, and every other payment you have monthly. Being familiar with your expenses will improve your retirement planning. Although staying within a budget may be challenging, it can help prevent you from running out of money in the middle of retirement.

4. Pay off your debt

If you are nearing retirement and have a substantial amount of debt to your name, you might want to reconsider retiring at that time. Seniors who are 60 years and older have some of the fastest-growing debt regarding loans and education. For example, seniors carry at least $20,000 in college debt for themselves or their children, according to Vanguard.

The last thing you want is to spend all your hard-earning savings and Social Security benefits on credit cards and loans with high-interest rates. It would be best if you considered retiring your debt before you do. Consider working past your retirement age and dedicate a substantial amount of money to put towards your debt; you could retire stress-free, which is what you want.

5. Have an emergency fund

Since you will have a savings account strictly for healthcare costs, you should also consider contributing to an emergency fund. An emergency fund can help you when you have unexpected expenses, such as auto repairs, plumbing emergencies, or even unplanned travel.

A good rule of thumb is to save at least three to six months of your monthly expenses in a savings account. However, you should save the amount that makes you feel safe and comfortable to have throughout retirement.

Before you retire, you could start by putting $300 per month in an emergency fund, and if you were to retire in three years, you would have $10,800 saved strictly for emergencies.

Summary

Retirement can be a stress-free, relaxing time. However, if you are drowned in debt and do not have a substantial amount of savings, it might not be all that you dreamed of. If you apply these five financial tips to your financial planning agenda, you will plan for a comfortable retirement.

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