Everyone dreams of a happy and long-lasting retirement. Not everyone is able to achieve that, though, and a main reason is because of finances, financial expert D. Paterson Cope says.
If you’re getting close to retirement and need to get your finances in order to ensure you have enough money, don’t worry, you’re not alone. There are plenty of steps that you can take to put you on the right path.
Below are four personal finances strategies that can lead to a happier retirement.
Table of Contents
1. Create a Realistic Budget for Retirement
The budget that you live by while you work needs to change when you retire. It’s not just the income side of the budget that will be affected, though. You need to understand what your short- and long-term post-work expenses will be so that you can create a realistic budget for yourself.
Just because you stop working doesn’t mean that your bills will stop, too. While some of your bills may start to decrease, others will increase. For example, your housing expenses may go down as you pay off your home, but health-care expenses are sure to increase.
Creating a realistic budget in advance of retirement will allow you to make plans now for how you can adjust your finances.
2. Pay Down Your Debt
It’s always a good idea to pay down as much as possible, but it’s especially important as you approach retirement. Ridding yourself of debt isn’t only freeing from a financial standpoint, but it’s mentally freeing as well.
There’s a significant psychological benefit to retirees when they pay off debt, especially their mortgage. Doing so removes a major monthly financial commitment, and puts a huge asset square in your hands, free and clear. It’s quite an accomplishment, as it’s a bill you’ve probably paid for 30 years or more.
As you approach retirement, you can accelerate the payoff of your mortgage by making additional principal payments each month. This will reduce the number of years you have to pay your mortgage, and also save you loads of money in interest.
3. Diversify Your Income
It’s important that you diversify your retirement income, just as you diversify your investment portfolio. Getting a check from multiple places is better than from just a single income stream, because it helps protect against negative market conditions.
Social Security serves as a main income source for most retirees. The second-most common form of retirement income is an employer-sponsored retirement plan such as a 401(k). Even just having those two accounts — and maximizing your contributions to the 401(k) if possible — is a good start.
Taking it another step is even better. Look into adding a Roth IRA to your investment portfolio to diversify further. This will also help from a tax benefit, as all earnings in a Roth IRA won’t be taxed, nor will your money be taxed when you take distributions.
4. Budget for What Matters to You
Retirement is supposed to be a time when you’re enjoying life to its fullest. How you define that is likely different from how others define it.
As such, D. Paterson Cope says that it’s important that all retirees should budget in what matters most to you. Do you want to travel more in retirement? Then, budget for it. Do you want to take up a new hobby, purchase a second vacation home? All of these things can be achieved if you plan for it and work toward it.
About D. Paterson Cope
D. Paterson Cope, CFP® is the founder and CEO of Cope Private Wealth, a financial planning and wealth management firm specializing in assisting retirees and people who are about to retire. D. Paterson Cope has been providing financial advice for more than 30 years. He first earned the designation of Certified Financial Planner (CFP) in 1997. When he isn’t working, he enjoys spending time with his wife, Jennifer Miree Cope, and the rest of his family in Mountain Brook.