If you are preparing for retirement, you could have more questions than answers at the moment especially with the health crisis still ongoing. It can put your plans into question especially with the way how the market and the economy shifted during the crisis. With the economy forced to an almost screeching halt, no doubt it rippled out on your retirement plans.
For one, the stock market could have been in a wild swing from the moment the virus swept through the country and even the world. Several industries struggled to adapt and businesses were doing their best to stay afloat. This resulted in a lot of people getting laid off or forced to put in fewer hours in a week to save on cost.
Preparing for retirement could prove to be a difficult task when you find yourself trying to stay above water in the middle of a health crisis. There is a good chance that you are focused on other more pressing matters such as buying food or paying rent. You could still have your job but your priorities might have shifted as well.
Your priority at the moment could be to strengthen your emergency fund. You could be doing this so you do not stress out over the possibility of another global crisis. That is totally acceptable. But if you are already starting to prepare for your retirement, you might need to approach your finances a little differently. Here are a few things to consider to help you prepare for your golden years.
If you have not started yet, the best time to save up for your retirement was yesterday. The next best day though is today. Do not wait for tomorrow or next week or next month. One thing that could be holding you back is that you are waiting to set aside a considerable amount in one go. Though tempting, this mindset can hold off any progress you could have with your retirement planning.
The idea when preparing for retirement is to start now and start small. Though it would really be different when you are already nearing your retirement age. That requires a little more aggressiveness in terms of growing your nest egg. But if you still have a long way to go, you can begin now and start saving even just a small amount.
The reason behind this is that you are trying to create a habit of saving money. The smaller the amount you start with, the easier it is for you to do it consistently over a long period of time. Once you have built up that habit, it now becomes automatic for you. This is the time you start increasing the amount little by little.
Manage your risk
Preparing for retirement also means investing your money to grow it. The idea is that your returns should at least be higher than the inflation rate. This way, your money does not lose its value over time. But as you do this, you might opt for investment options that promise high returns. Know that these are the ones that carry the most risk.
It is a good practice that before you go into any type of investment, you assess the risk involved and how comfortable you are with them. Some people don’t mind risky investments if it pays off with huge returns. Normally, these are the younger ones who can recuperate their investment if it does not pan out or those people who already have a lot of safe investments.
As you get older, you might want to slowly transition towards safer investments. As you age, it would be more difficult for you to start back from square one in case your investment does not pan out. This way, you save whatever returns you have gained, and more importantly, you keep your principal amount intact.
Cut down on debt payments
One of the most logical ways in preparing for retirement is to make sure that you are able to cut down and pay off your debts as much as possible. This way, you get to use the money you saved up for retirement activities and not much on debt payment. Much like saving for retirement, paying off your debts before your last day in the office does take a lot of forward planning.
This is especially true when you have a lot of high-interest payments like your credit card debt. Value Penguin shares that the average credit card balance per consumer is over $5,000. If you bring in a lot of them into retirement, you will realize that you are spending a good part of your retirement income on paying your lenders. Rather than taking that trip or cruise, you have to put it off just to make debt payments.
Cutting down on debt payments early on before your retirement also means slowing down in taking in more debt. You could be paying off a lot of your cards and then using them all up again the following month. That cycle will only be good for your credit score but can put you in a difficult situation once you carry them over into retirement.
Explore a frugal lifestyle
To help you pay off debt and save more while preparing for retirement, a frugal lifestyle could be an option. This is where you make an effort to live and spend below what you have already budgeted. For a lot of people, this is a chance to let their creativity loose as they identify specific ways to lower down their expenses.
How to survive with little savings
Retirement could be just around the corner but you might not have enough in your funds to retire. What are you supposed to do? With the little savings that you have, there are some options to explore to augment your retirement income.
Delay Social Security benefits
Preparing for retirement includes your social security benefits. But did you know that your full retirement age matters a lot when claiming benefits? This is an exact age computed on the year you were born. If you claim your social security benefits ahead of your full retirement age, you stand to get less because it gets deducted.
However, choosing to claim after your full retirement age until you get to 70 years old is a different matter. You actually 8% more to your benefits each year you put off. This means that if your full retirement age is 67 and you put off claiming your benefits until 70, you get an additional 24% increase in benefits in effect for the rest of your life.
Decide on a part-time job
To help add to your retirement income, you can look into a part-time job or a side hustle. The good thing about this is that you get to choose and dictate your own time. If your part-time job revolves around your hobby, that is even better. You get to do something you already love doing and in the process, you earn from it as well. This can help you add to your retirement income and a good way to spend your time.
Rent out a room
If you have no plans of moving out from your home but you have more rooms than you need, why not explore renting them out. You get to stay in your house and you meet new people in the process. Of course, you have to make sure that you can trust the person who will live with you. They can be a relative or a family friend just to make it easier to trust them. You can even give them a lower rent if they can help you with some chores. That could come in handy especially as you get older.
You need to start preparing for retirement as early as you can so you can retire as early as you want to. If not, you will be forced to work well past your retirement age.