For a lot of people, retirement might look quite different now from what they expected. The major economic impact of the Covid-19 pandemic could mean that more people decide to retire early, with less saved up than they might need.
Image – free for commercial use
Whether or not your retirement plans are secure or not, it’s always smart to review where you stand. Whatever your financial situation is, the same retirement principles apply; plan for surprises, reduce your spending, make conservative decisions on savings, and keep earning an income if you can.
Here are some tips to help you improve your retirement plan in 2021. Some of these tips might be familiar, some will be new thanks to the pandemic. All of them are essential tips. Get started on them as soon as you can.
Be Ready For Early, Unplanned Retirement
A lot of people have to retire before they want or are ready to. In fact, almost half of retirees left their workplace before they had planned to retire, and the pandemic has only accelerated this trend.
Sometimes this early retirement is involuntarily, caused by layoffs or older workers who are a higher risk for covid deciding they don’t feel comfortable returning to their offices and other places of work and being exposed to the virus. Unfortunately, no matter the reason why, the timing is becoming earlier than many people had planned.
This tells us that workers who are in their 50s and 60s should start to make some retirement plans for unplanned circumstances. Hopefully, the vaccine will encourage an economic recovery that will make it easier to find jobs and layoffs a lot less common. Hope, however, is not a plan, so even if you think retirement is a long way off, now is a good time to plan an emergency strategy for early retirement, just in case.
Deal With Your Debt Immediately
The best time to pay off your debt is while you are still working. If you plan to retire within the next twelve months, or even if your retirement is still a way off, make sure you prioritize paying off credit card balances, student loans, car loans, and mortgages.
The number of people in the 60s and 70s who still have mortgages, credit card debt, and student loans has risen dramatically. It’s very hard to pay down debt when you are on a fixed income, so put in the overtime now while you can to get them paid off now.
Prepare A Health Insurance Strategy
You can enroll in Medicare at 65. There can be penalties for not enrolling on time. Plan to sign up in the months before your 65th birthday, so the coverage can kick in in time.
Enrolling in Medicare should just be the start of planning for retirement healthcare. The average American couple will spend around $300,000 on co-pays, additional premiums, and other medical expenses during their retirement. You will likely pay these out-of-pocket expenses out of your retirement savings, so you ought to factor this into your plans.
If you have to retire before you turn 65, you will need to get health insurance on your own until your Medicare kicks in. See if your company offers any kind of retiree health coverage, or look into the Affordable Care Act. Make a plan now, before you have to make these tough choices.
Maximize Your HSA Contributions
One way to pay for those health insurance premiums that come up in retirement, or other unplanned expenses, is to have a strong nest egg in a health savings account (HSA). If you start funding an HSA, your contributions can grow tax-free for two or three decades, giving you some emergency savings for your senior years.
Health savings accounts offer a lot of benefits. Contribution into these accounts are tax-deductible, the money grows tax-deferred from year to year, and withdrawals are tax-free if you use them for qualified medical expenses. As an added bonus, a lot of employers will contribute cash to these accounts to encourage you to sign up.
HSAs are usually tied to high-deductible health insurance plans, so they aren’t suitable for everyone. They are a good option for those in good health, with few healthcare expenses, and for those who often exceed their annual deductible.
Understand Your Retirement Income Options
There are a lot of options for savings accounts and other income, and you need to understand the difference. Click here to learn about the different options for your IRA.
You can start collecting Social Security benefits at 62, and can start taking 401(k) distributions without penalty at 59. A lot of people are actually better off putting off withdrawing from either for as long as they can.
Make a long-term financial plan with a financial advisor who can help you make the right choices and things like estate planning and taxes. Start on a spending plan before you retire.
For example, a professional might advise you to spend your last year in work converting some of your retirement savings into Roth accounts. When you do this, you might face some extra taxes at first, but in the future, you will be able to make tax-free withdrawals. This might make the most sense for your plans.
Even if you do decide to draw your accounts down, you do still need to maintain an investing strategy. You could be retired for decades, so you do need to keep investing for your future, even as you start to spend your savings.
Try the bucketing strategy, which involves planning your withdrawals with different time segments, or ‘buckets’. One of your buckets might be for the next couple of years, which you would invest very conservatively. The means that you have a pot of safe money that could help you to survive a downturn in the market without having to sell your stocks at the low point. Another bucket might be for spending only after 2030, so can be put into a riskier investment.