“Financial security isn’t a number or a threshold. It has to do with what you spend, and save, relative to your income.” This translates into spending less than what you earn and saving the surplus. “Over time, you keep building that cushion while insuring yourself against catastrophic expenses that could wipe out what you’ve saved.” Below are seven simple tips to help you achieve financial independence in your retirement:1
Credit card debt, payday loans and auto title loans are all very expensive forms of debt. Therefore, you want to tackle these first. If paying off this high-rate debt within five years isn’t possible, then it might be a good idea to consult a credit counselor and a bankruptcy attorney about your options.
Having an emergency fund is a necessity. According to a recent article, it doesn’t have to be huge, but $500 is a good starting amount for unexpected expenses such as a healthcare deductible or car repair. If you have to dip into this fund, try to replace it as soon as possible. Then as you start to pay off any high-rate debt you may have, you can boost your emergency fund with the goal of saving enough to cover three months’ worth of expenses.
Limit Your Overhead
The article states that a good rule of thumb is to limit your overhead, and keep your essential expenses to 50 percent or less of your after-tax income. Following this strategy will make it easier should you lose your job or not be able to work. Essential expenses would include items such as housing, utilities, food, transportation, and insurance.
If your employer offers a workplace retirement plan with company matching, then you should take full advantage of this. The articles states that you should continue doing so even if you’re paying off high-rate debt because company matching is essentially free money. If your employer doesn’t offer such a plan, then you can start funding an IRA as an alternative. There are a number of online retirement calculators available to help you determine how much to contribute. If you can’t contribute as much as you need to right now, then you can always start small and increase it over time.
Don’t neglect your insurance. For example, health insurance can protect you from high medical bills. Make sure your dependents are covered with life insurance. In addition, as you accumulate wealth, don’t forget to increase the limits on your home and auto insurance. The article states that the limits should at least equal your net worth.
It’s important to have guaranteed streams of income. “In retirement, your basic expenses should be covered by income you can count on.” According to the article, if social security isn’t enough, you may want to consider an annuity to help supplement your income.
Retire Your Mortgage
Paying off your home and eliminating your monthly mortgage payments can free up your cash flow. It can also mean not withdrawing as much from your retirement accounts to make those payments, thus making your savings last longer. One way to pay off your mortgage and supplement your retirement funds is by accessing your home equity through a reverse mortgage.
If you’d like to learn more about reverse mortgages and whether you qualify, please use our Reverse Mortgage Calculator or call 800-218-1415.
1 Investing: Follow these steps to security – startribune.com, 11/26/16, by Liz Weston NerdWallet, http://www.startribune.com/investing-follow-these-steps-to-security/402543845/?tc=eml&tc=eml.