The WSJ brings us some timely expert personal finance tips for those in or close to retirement. Normally, personal finance is targeted at the young and new to working life, but older Americans are in need of advice as much as anyone else. In fact they are even more at risk, because they don’t have time to recover from bad financial decisions.
1. Delay retirement – When it comes to retirement, timing is everything, experts say. “Deferring retirement is probably the best piece of advice I can offer,” says Olivia Mitchell, executive director of the Pension Research Council at the Wharton School. Working longer generates two things: income and bigger Social Security benefits.
A tool on the Social Security Administration’s Web site, ssa.gov, can help users estimate benefit amounts. Amounts will vary based in part on a person’s age when they start collecting Social Security benefits. A thorough assessment of your personal finances will help to determine the right age to retire. “Don’t [retire] because you hate your job, or 65 feels right,” Ms. Setzfand says. “The best way is trying to figure out how much retirement income you have available and base your decision on that.”
2. Don’t outlive your money (Longevity Risk) – While many people look forward to living longer, healthier lives, there are financial risks associated with longevity, experts say. That is, you want to make sure you don’t outlive your money. One option is to use part of your nest egg to buy an annuity that will guarantee you regular payments for the rest of your life. However like any investment the long term costs/benefits of this have to be thought through.
3. Stay in control – Don’t give anyone control over your finances, except maybe your children, Mr. John says. “If you don’t keep very close control, you may find your money is not there anymore.” Legitimate charities may attempt to obtain the right to directly debit your bank account for automatic withdrawals, he says, while scammers may drain an account dry.
“Seniors can be pressured into giving [personal and financial] information out,” Mr. John says. “In many cases, their hearing is not what it once was. [They may not] totally understand what is being told to them. This is a widely used tactic by phone scammers.” Also, consumers shouldn’t sign up for anything they don’t completely understand. Avoid “deals” that use a time constraint to pressure consumers to sign up, Mr. John says. “This is a standard sales technique to get people to agree to something without necessarily taking the time to understand it.”
4. Smart Budgeting by watching your expenses – Think about areas where you can save, even if it means a lifestyle change, Ms. Setzfand says. For example, consider your house — do you really need three bedrooms now that your children are adults? “Can you sell your home and find a more affordable rental?” she says. Another option: downsizing to a smaller, less-expensive home or even considering a HUD backed reverse mortgage to provide a decent cash flow on your biggest asset.
On the other side of the spectrum, Ms. Setzfand says, some retirees may be overly concerned about outliving their assets and spend less money than they could. “Many will exaggerate the amount they need to dial back on their lifestyle in order to ensure that they will not run out of money,” she says. “Having an adequate level of income [from an annuity] may help alleviate some of the stress and allow for a bit more spending flexibility.”
5. Be careful when it comes to investments, Mr. Laitner says. “We’ve seen [that the stock market] can go down even faster than it goes up,” he says. “If I’m older and I need this money to live on, it may not be wise to hold it all in common stocks. Maybe budget some or all of this into an investment that doesn’t fluctuate with the market.” For example Bonds and TIPS can provide the required diversification retiree’s are looking for. Ms. Setzfand also recommends older Americans establish a durable power of attorney. “Before you get to the point where you can’t make good decisions for yourself,” she says, “you can appoint [a qualified professional] you trust to manage financial and legal matters on your behalf.”
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