When you reach your sixties, investing and saving may look a little different than they did in the past few decades. Instead of focusing only on growing your nest egg, you may be considering how to use some of it without overextending. Having a solid financial foundation will make for a smoother transition as you enter retirement.
In order to make the most of your savings, you should work to decrease your living expenses and eliminate credit card debt. Building wealth means preserving as much of your current wealth as possible, while continuing to invest and grow that wealth, too. Once your financial basics are in order, you can explore the strategies below to maximize your wealth-building potential.
Tip #1: Firm Up Your Financial Foundation
Having a stable financial foundation will make your retirement a smoother, more pleasant experience. But what do we mean when we say financial stability?
First and foremost, it is essential that you have a good understanding of your financial needs and your expected lifespan. We recommend overestimating your life expectancy so that you don’t wind up outliving your savings. Now, consider what your annual expenses look like and approximately how much you’ll need to withdraw annually from your retirement accounts to fund your lifestyle.
You should also have a fully-funded emergency savings account. This resource will help bridge financial gaps that could occur during retirement as you follow some of the other tips included below. For instance, if you’re planning to keep your retirement accounts invested in the stock market (See Tip #3), an emergency account can allow you to leave that money untouched even if the market takes a downturn, which will save you from selling investments at a loss. Everyone’s situation is different, but if you can afford it, it is wise to have an emergency fund that covers annual expenses for anywhere from six months to two years. The size of your emergency fund will depend on your income sources from pensions and Social Security, on your expected major expenses, and on the amount of fixed income in your portfolio (more on that in Tip #3 below).
SEE ALSO: Ways to Build Wealth in Your Fifties
Tip #2: Make Retirement Accounts Work for You
Your retirement accounts are intended for just that – your retirement. However, you don’t have to begin withdrawing from them as soon as you enter this new phase of life. Those accounts can continue to generate wealth through compound gains, just as they have for the past few decades if you can wait to tap into them.
While you should keep your retirement accounts fully invested for as long as possible to maximize your ability to build wealth in your sixties, that doesn’t mean you have to keep your portfolio the same. Now that you are retired or just a few years away from being so, you may want to keep your investments in more conservative stocks or diversify even more to incorporate some cash equivalents and bonds.
Once you reach 72, however, you will legally need to start withdrawing from your retirement accounts to make Required Minimum Distributions (RMDs). How you handle your RMDs can be tricky, so make sure you are aware of these potential mistakes that could cost you more in the long run.
Tip #3: Build Wealth in the Stock Market
The volatility of the stock market can be intimidating for any investor, but it may be particularly concerning for those who are getting ready to live off the funds they have saved for retirement. Major shifts in the market could mean major shifts in those critical savings. For that reason, it’s smart to have bonds or fixed income as part of your portfolio. Since these investments are less volatile, they can buy you time to ride out volatility in the stock market. If you are taking income from your portfolio and the stock market is down, causing a need to sell in order to generate cash, you can sell on the bond side of the portfolio as long as you need until the equity portion recovers. In many cases, depending on your spending and what you have accumulated, you might have up to 10 years of income available on the fixed income side of your portfolio. This can help provide peace of mind during down markets.
It’s clear why these less risky investments have more appeal once you reach your sixties, but it’s true that they typically also have less earning potential than stocks. In the end, how you choose to invest should be influenced by several key factors, including when you plan to retire, life expectancy, living expenses, and investment goals.
Tip #4: Use Your Medicare Benefits
With age comes wisdom, and one of the wisest moves you can make is taking advantage of the benefits that may be available to you, such as Medicare. Enrolling as soon as you’re eligible can help you pay for healthcare costs during retirement, which could total around $300,000.
Several Medicare plans exist, and each part provides different coverage. While Medicare is a great benefit, it doesn’t cover every aspect of your potential healthcare needs. Eye exams, hearing aids, and long-term care aren’t covered by Medicare. You may need supplemental coverage for those or be able to pay out of pocket for them. Do your research so you know what you will need and can plan accordingly.
Some health issues may be unavoidable but be sure to take care of your physical and mental health. Not only will that help you enjoy your retirement to the fullest, but it should also help curtail healthcare costs to some degree.
Tip #5: Maximize Your Social Security Benefits
Social Security is another benefit available to you once you hit the age of 62, as long as you worked and paid taxes for 10 years or more. You have paid into Social Security for your whole working life, and now it’s finally time to collect, right? Maybe.
If your financial situation allows for it, it often pays to delay collecting. In fact, if you wait to collect your Social Security until you reach age 70, you will receive 8% more and will be maximizing your benefit. There’s no need to wait longer once you reach 70 as the benefit doesn’t increase beyond that age.
At Resolute, we conduct a “break-even analysis” for our clients using our financial planning software. This allows us to see how long an individual would have to live if waiting to collect a higher benefit before re-cooping the lost Social Security payments they didn’t receive. Those with health issues or a concerning family health history could find it challenging to achieve the break-even age. In the case of married couples, it can sometimes make sense for the spouse with the higher Social Security benefit to wait to collect, so that if one spouse passes away then the surviving spouse knows the higher Social Security payment will continue. This can provide more long-term security.
While it’s unlikely that Social Security will fully fund your retirement – and there’s no guarantee that it will be available when you retire – it’s still important to be strategic about your Social Security benefits.
Tip #6: Tackle Your Dreams in Retirement
Your retirement goals will probably look different than those of other people you know. Perhaps you have always wanted to travel and your dreams for retirement have you jet-setting around the country – or even the world. Maybe there’s a small business you had wanted to try. Perhaps you’re interested in spending some quiet time at home, gardening, and visiting with family and friends.
Whatever your retirement plans, use those to guide your saving and investing. Even the humblest plans will require some money, and having the financial freedom to pursue your dreams in retirement will provide not only a sense of satisfaction but also peace of mind.
Need More Guidance for How to Build Wealth in Your Sixties?
The tips above are a great starting point, but planning for retirement can be complicated. If you want to find the right financial blend to maximize your investments, consider creating a retirement plan with a professional financial advisor.
At Resolute, we combine our financial expertise with a client-centric approach, recognizing that each client has unique life circumstances, needs, and goals. If you’d like to begin a conversation about a customized plan to serve your financial future, please reach out to us today.