Navigating retirement can be overwhelming given uncertainties like market volatility, inflation, life expectancy and the state of Social Security. Like having a mechanic give your car a periodic once-over, regularly reviewing your spending and saving can help keep your financial motor running smoothly, ensuring you maintain healthy cash flow, adapt to changes in the economic landscape and stay on track toward your retirement goals.
If you feel like your economic engine is starting to sputter, or you just haven’t looked under the hood in a while, it may be time to tune up your retirement finances. Here’s your check-up checklist.
1. Update your budget
The first step is to dust off that budget spreadsheet and give it a makeover.
Remember that budgeting isn’t just about tracking what you spend. Income is an important element, too. Did you recently pick up a part-time job to keep busy? How did the latest Social Security cost-of-living adjustment (COLA) affect your benefit? Including all income sources in your budget gives you a realistic picture of what you’re working with.
Next, update your budget with current and upcoming expenses. Not just your regular bills like groceries and utilities — factor in things like discretionary spending (on entertainment and eating out, for example), health care costs (which tend to rise as you age), estimated taxes, and any planned travel or home improvements. Aaron Cirksena, founder and CEO of MDRN Capital in Annapolis, Maryland, recommends making room in your budget for an emergency fund (or starting one if you haven’t already). Building a rainy-day cushion into your budget puts you in a better position to handle unexpected home or health costs or absorb economic shocks like an inflation spurt.
Now, compare your expenses to your income. If you’re spending more than you bring in, consider some of these measures to cut costs:
Reduce discretionary spending.
Cancel streaming services or other subscriptions you don’t use much.
Downsize your home.
Move to a cheaper area.
Buy bulk or generic items at the grocery store.
Look for retailers and venues that offer discounts for older customers.
Comparison-shop for insurance. You may find lower premiums for health, home or auto policies (but make sure you’re still getting the level of coverage you need).
2. Declutter your financial records
Getting control of your finances can be challenging without a reliable organizational system. Gather up loose bills, account statements and other paperwork into one spot, and do the same for digital files on your computer. Identify which documents to keep and which to shred or delete.
According to the Financial Industry Regulatory Authority (FINRA), this is how long you’ll want to retain various financial documents:
Tax records: 7 years (this includes any records from the categories below that you use in preparing your tax return)
Property records: 6 years after selling your home
Mortgages and other loans: Indefinitely
Bank records: One year for checks and account statements
Pay stubs: Until you get your W-2 form (so you can verify it has the correct amount)
Credit card receipts and statements: FINRA says to keep receipts until you can check them against your monthly statements, then shred both (unless they reflect purchases you plan to claim as tax deductions). However, other sources such as Bank of America recommend keeping credit card statements for a year.
Brokerage statements: 7 years
Utility bills: As soon as the payment clears
Once you’ve culled outdated documents, organize what’s left. Create physical or digital folders for categories like insurance policies, bank statements, credit card statements, mortgage and loan records, 401(k) and IRA statements, tax records, property records and income statements (from work, pensions, annuities or Social Security, for example).
Store them in a way that’s accessible (so you can quickly find a document you need) but secure. Consider keeping physical documents in a fire-resistant cabinet to protect them from a disaster. For digital files, save backups on a password-protected portable hard drive or encrypted cloud storage service. For an extra layer of protection, you may want to hold both physical and digital copies of your records.
3. Consolidate financial accounts
Like decluttering documents, consolidating your accounts makes managing financial activity easier.
“I often find that people have way too many relationships with different financial institutions and too many accounts,” says Chris Urban, a certified financial planner and founder of Discovery Wealth Planning in McLean, Virginia. “There is often an opportunity to consolidate both of these into a smaller number of institutional relationships as well as combining accounts.”
For example, if you have multiple 401(k)s from different past jobs, you could roll them into a single traditional or Roth IRA. Keep in mind that spouses cannot combine retirement plans, as the names or titles on the accounts need to be the same.
In addition to retirement accounts, consider consolidating your bank or taxable brokerage accounts.
“It is often the case that people have accumulated various bank accounts over the years for whatever reason, perhaps prior to marriage. Most people would be fine working with a single bank and a single brokerage for various savings, investment, retirement accounts,” says Urban.
Don’t consolidate just for the sake of consolidating, though. Many people still need multiple accounts (to separate business and personal banking, for example). In this case, a money management app can help you streamline your financial life by aggregating activity from all your accounts.
4. Check credit reports
You can pull credit reports weekly, for free, from each of the three nationwide credit bureaus (Experian, Equifax and TransUnion) through AnnualCreditReport.com or by calling 877-322-8228. Reviewing them regularly for errors and fraudulent activity is a good practice to integrate into your financial routine.
Comb each report for unfamiliar or incorrect information. To remove an inaccuracy, you’ll have to dispute it with the respective bureau, which you can do online, by phone or by mail. The federal Consumer Financial Protection Bureau offers detailed advice on how to contest an error, including how to write a dispute letter.
If you believe unrecognized activity on your account was due to fraud, report it to the Federal Trade Commission at IdentityTheft.gov. You’ll find instructions and other resources to mitigate and recover from identity theft.
You can also subscribe to a credit monitoring service. These companies watch your credit report on your behalf and alert you to any changes or suspicious activity in your file. Expect them to charge a fee, but it could be worth it for the peace of mind, especially if you’ve recently been scammed.
5. Prioritize debt to pay off
Many retirees primarily rely on a fixed income, and carrying debt means less of that income is available for meeting day-to-day expenses and living the retirement you want, says Jack Wallace, director of government and lender relations at Yrefy, a national lender focusing on student loan refinancing.
Wallace recommends chipping away at debt by paying off high-interest loans first. For most consumers, that means credit card bills.
One way to tackle big balances is consolidating them into a balance transfer card. These cards typically offer a 0 percent annual percentage rate (APR) on transferred balances for a set period, generally from nine to 21 months. This buys you time to whittle down the debt before interest starts accruing.
“Know when the ‘teaser’ rate expires and make sure you get the best offer before the teaser rate expires,” Wallace says.
Keep in mind that balance transfer cards may charge fees, and interest rates for any balance left after the promotional period ends can be steep. Be sure to compare these terms, as well as additional perks a card offers, such as cash-back points on new purchases.
Wallace offers these additional tips to make debt payments more manageable:
Refinance high-interest loans if you can secure a better rate.
Visit the federal site studentaid.gov to see if you qualify for an income-driven repayment plan for student loans, which can reduce your monthly payments.
Set up autopay to make regular repayments directly from your bank account. Many lenders offer autopay discounts, typically a 0.25 percent reduction in your interest rate.
6. Reevaluate your investments
Changes in your financial situation, your tolerance for risk or the state of the market might signal that it’s time to review your portfolio, Cirksena says.
For example, older adults might consider a more conservative approach because they have less time to make up for losses from riskier investments or a market downturn. This means shifting assets away from stocks and into lower-risk investments such as bonds or annuities. During a bull market, however, investors may be comfortable putting their money into higher-risk investments for increased returns.
Keep your financial obligations in mind, Cirksena adds. Do you have medical issues that are likely to increase your health care expenses? Are you eyeing home renovations, or funding a child’s or grandchild’s college education? In that case, you might want to keep your money in more stable and liquid vehicles like a high-yield savings account, money market account or certificate of deposit (CD).
Consider working with a financial adviser who specializes in retirement planning. They can help you adjust your portfolio based on your goals, life expectancy, risk tolerance and current situation.
https://www.aarp.org/retirement/planning-for-retirement/info-2024/reevaluate-savings-goals.html