Top 8 Financial Tips for Retired Baby Boomers

1. Use Your Home as a Source of Retirement Income

Home equity is usually the largest source of wealth for people and is usually their single largest holding. Due to this, it is important to understand how you can use this wealth to help pay for your retirement. First, if you find yourself in too large of a home you could consider downsizing. This will allow you to access the tax-free equity (in many cases) money from your home and can be used to build more savings for retirement. On the other hand, if you want to stay where you live, then a reverse mortgage might be an option to consider depending on your personal situation. A reverse mortgage is a loan in which you are borrowing tax-free your home equity; however, unlike traditional mortgages, you do not have to pay back the money borrowed until you move or pass away. One type of reverse mortgage planning prevents any liability left to surviving children.

2. Health = Wealth

According to Kathleen Coxwell, NewRetirement writer, “More than 80% of today’s retirees say health is the most important ingredient for a happy retirement, meaning that the majority value good health even over financial security.” Even if you have strong retirement savings, it might not mean much if you continue to spend it all on preventable healthcare expenses. Investing in your health will be your best retirement investment. Find a physical activity you love whether its walking, yoga, gardening, or weightlifting and make it a habit to participate in that activity multiple days a week. Make sure to eat healthy and fuel your body with nutrients. Continue to challenge yourself mentally and maintain a social life. If your mind, body, and soul are healthy this will lead to increased wealth.

3. Continue Retirement Planning

Just because you created a retirement plan and budget when you retired, does not mean the same plan and budget will apply for future decades. It is key to continue to assess your financial situation and adjust your budget on a year by year basis. In retirement, unexpected expenses happen and you will have to reanalyze your financial plan to account for this along with ongoing tax changes, inflation, and new innovations that can protect and continually improve your planning.

4. Talk with your Spouse

According to NewRetirement, “In a 2013 Fidelity Study, nearly 40% of couples disagree on the lifestyle they want after retirement.” It is critical to be on the same page with your spouse about the retirement lifestyle you want to live. Your retirement money management involves both you and your spouse so you need to make sure you both have a clear understanding of retirement spending. If couples have this conversation early, it can prevent future conflicts during retirement. A vital step to save taxes is for both spouses to be on the same page about when to file for Social Security to prevent 85% of the benefits from being taxed as well as IRA and 401k distributions along with requirement minimum distributions. We see a lot of taxes wasted because both spouses are not on the same page and not addressing these impactful retirement steps.

5. Wait to Start Your Social Security

The longer you wait to start social security, the more annual benefits you will receive. According to Fidelity, “If you claim Social Security at age 62, rather than waiting until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits.” Also, if possible, wait until 70 to start Social Security as this is the age when you receive the maximum benefits, any age over this will not raise the benefits. As stated by Fidelity, “For every year you delay past your FRA up to age 70, you get an 8% increase in your benefit.” Make sure to have a Social Security retirement plan and really try to wait to start Social Security until you can reap the full benefits from your decades of hard work. We analyze each client’s situation case by case to understand their Social Security and Retirements Plans. Many client advisors do not address key Social Security benefits due to not being very knowledgeable in this topic. Fortunately, there are specialists that are highly skilled in this topic and that can help people maximize their Social Security benefits.

Visit this website to learn your full retirement age:
https://www.ssa.gov/planners/retire/retirechart.html

6. Be Tax Smart with Withdrawals

Every retirement account is taxed differently and it is important for you to understand each type of account. You might want to consider a Roth Conversion that takes all or a part of the money in a traditional IRA and moves it into a Roth IRA. If you meet certain requirements, a Roth IRA allows tax-free withdrawals in retirement. Also, be aware of how much money you withdraw each year and how this amount might affect your tax bracket. Keep in mind you must start taking required minimum distributions (RMDs) from you 401K plan once your reach 70 ½ years old. Since taxes are so complicated, it might be beneficial to hire a financial advisor for tax and retirement help. The new proposed legislation by both the House and Senate are threatening the future of the stretch IRA for inheritances to non-spouse beneficiaries. It is a vital time to be sure your desired legacy is addressed with these coming changes. Plus, you must manage your marginal tax bracket for maximizing retirement income.

Check out this article from Investopedia to learn more about the different types of IRAs:
https://www.investopedia.com/terms/i/ira.asp

7. Sign up for Medicare

Medicare is available to individuals who are 65 and older and can be used to cover certain medical expenses such as hospital insurance for in-patient care. This will allow you to use Medicare to pay for some of those medical expenses instead of your retirement savings. However, the medical insurance is optional and available at a premium. If you already have health insurance, then you might not need this option, but you should consider the costs and benefits of each plan. The hospital insurance is no additional cost because you paid it as part your Social Security taxes when you were working. Please be aware of the Medicare part B and D premium penalties based on reportable taxable income. We see many retirees regret not knowing these facts about Medicare and then it is too late.

8. Create Safe and Protected Retirement Income

According to NewRetirement, “When you retire, most experts recommend that you worry less about returns and more on figuring out how to turn your retirement assets into reliable retirement income.” One way to turn your retirement savings into retirement income is an annuity. The most serious risk you face as a retiree it outliving your savings, and a retirement annuity is a financial product sold by insurance companies that guarantees the purchaser with income for life or a fixed period of time. Also, one advantage is that one can customize an annuity to protect against inflation. Since an annuity is guaranteed income and therefore less risky, they generally yield lower returns and some annuity types have high fees. It is important for you to do research about what retirement investments are the best fit for you. There are other legal reserve insurance designs that should be learned that can provide tax-free income without market loss risks.