Commonly Missed Retirement Planning Tips
If you are ready to retire or need just a bit more to help bridge the gap in your retirement funding, there might be some things you haven't considered that can help you raise additional retirement income or otherwise help meet your retirement goals. The following are the five most commonly overlooked retirement planning issues and suggestions on how to handle them.
Borrow while the borrowing is good. Banks are fair weather friends that love to lend you money as long as you are pulling down a steady salary. After you retire though, banks become skittish when you apply for a loan because they question your ability to repay the loan without the help of a regular paycheck. So, make sure to get your borrowing out of the way before you retire.
For example, one possibility to consider is refinancing your home mortgage to take advantage of favorable mortgage rates or to pay off high interest credit card debt. Another option that you should strongly consider is to set up a home-equity line of credit. This will allow you to tap into your home's equity in case of a financial emergency if necessary.
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Warning
Unlike banks, credit card companies will continue to encourage you to take on more debt than you can handle even if you are nearing retirement. However, you must resist the temptation to increase your level of credit card debt just before retirement.
Regularly carrying a large unpaid credit card balance from month to month causes a big strain on a person's financial resources even when the person is fully employed. That strain only increases after you retire and are no longer earning a paycheck. So, avoid ending up in bankruptcy court during retirement by using credit cards responsibly.
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A penny saved is a penny earned. Prior to retirement, find out the best way for you to invest the money from your company retirement plan. Taking the money and hiding it in your mattress or in a savings account earning one to two percent interest each year are not good options. Instead, consider transferring your company retirement plan money directly to an individual retirement account, where you can probably earn higher returns by buying a mix of stock and bond mutual funds and continue to defer paying tax on the interest you earn.
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Financial Calculators
One of the best ways to increase your savings is to spend less. Even a simple change such as bringing a bagged lunch to work a few times a week can make a difference. Use this Lunch Savings Calculator to illustrate how a little lunch savings can go a long way.
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Tap into your investments wisely. If you follow the advice of most investment advisers, you should have a balanced investment portfolio that includes a diversified collection of stocks and a mix of short-term and intermediate-term bonds. If you haven't already done so, consider putting the stocks in your retirement account and the bonds in your taxable account. The reason for this is that initially you will want to tap your taxable account for spending money, while leaving your retirement account to grow tax-deferred. It makes sense, then, to keep your bonds in your taxable account because they are a safer short-term bet than stocks.
Make Uncle Sam give back some of your money. Don't forget to apply for Social Security benefits three months before retirement. Then, not only will your Social Security benefits kick in on time, but so too will Medicare benefits. (Make sure to apply for Medicare three months before you turn 65, even if you are going to defer retirement.) Failure to apply for benefits in advance may cause an immediate financial hardship at the start of your retirement and force you to scramble to make up the shortfall.
Don't get caught without adequate insurance. Part of the price you pay for retirement is that you will have to give up company-provided benefits, like insurance, when you retire. The loss of company-provided health insurance is a major loss especially if you are under 65 and not yet eligible for Medicare.
If you have a spouse that is still employed, see if you can be included in his or her employer's plan. Otherwise, you are going to have to do some homework and find (and pay for) your own health insurance policy. Insurers like Blue Cross/Blue Shield and some of the large health-maintenance organizations may be your best bet. The federal and state health care marketplaces are another option. Providing interim health insurance before you are eligible for Medicare may be costly, but the alternative of not having medical insurance may be even costlier if you develop health problems or are subject to a penalty for not having health insurance as required by health care reform.
When you retire, you may also lose company life and disability insurance. Although you may supplement those two policies with policies of your own, there is often no need to keep up either policy. However, you may consider hanging on to the disability insurance if you plan to work part-time and continue the life insurance policy if you need it for estate planning purposes. To find out what works best for you, you really have to weigh the costs and benefits to you with each type of insurance.
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