9 Tips For Financial Stability In Retirement

Even if you’ve spent decades saving for retirement, you never really know how much money you need to retire responsibly. Do I have enough to last? Will my savings support my desired retirement lifestyle?

Readers we polled in our Retiring Into a Recession survey believe they need $1,234,108 saved to retire comfortably—though many worry whether they’ve stashed enough cash to last. Twenty-two percent of soon-to-be retirees are planning to delay retirement to save more and guarantee a more stable retirement.

If you want to ensure you’re financially stable in retirement, here’s how you can prepare, according to a retirement planner. Even better, you can implement some of these strategies right away.

#1. Start Now

Nearly every financial advisor will advise you to start saving early (as you should!), but there are ways to pad your retirement fund with a significant amount of dollars—even got a late start and begin saving at age 40 or 50. 

While your investments won’t experience the same growth as if you started earlier, it’s important not to underestimate how quickly a nest egg can grow, thanks to compounding interest. If you invest one dollar at age 45, that dollar will be worth $2.19 by the time you’re 62, according to a Vanguard estimate. 

Let’s use another example. If you invest $10,000 at age 50, your investment will grow to right under $21,000, assuming a flat 5% rate without considering taxes or inflation.

If you’re still working, contribute as much to your 401(k) as possible to catch up. You can also start making extra contributions to your tax-advantaged retirement accounts at age 50.

#2. Automate Your Contributions

Speaking of contributions, automate them to ensure you consistently add to your retirement savings. The easiest way to automate retirement savings is through an employer-sponsored retirement plan.

From Our Expert: By setting up automatic payroll deductions to your 401(k) or similar plans, you ensure consistent savings while also tapping into potential employer matches, amplifying your growth possibility. If you don’t take full advantage of maximizing the matched portion at minimum, you’re leaving free money on the table. Plus, most of my clients say they don’t miss the money they allocated to retirement because they set it up as soon as they were eligible to participate—the money doesn’t have time to become extra income.

Christopher Hensley, RICP®, CES™

#3: Pay Down High-Interest Debt

Prioritizing high-interest credit cards, vehicles, education, and other consumer debts can help you eliminate costly and recurring bills that could derail your spending plans. 

When prioritizing debt:

• Focus on paying off high double-digit interest accounts first
• Tackle any debt secured by assets such as a house or car note
• Pay down debt that could result in wage garnishments like student loans, alimony, or taxes

For example, it’s not uncommon for older workers to carry education debts, and the government can garnish up to 15% of your Social Security payments if you default on student loans.

From Our Expert: Some people believe that you must choose between reducing debt or saving money, but it’s important to work on both simultaneously. Always remember to pay yourself first by contributing to your emergency savings or retirement fund. While creditors will remind you to pay your bills, it’s up to you to prioritize your own financial future.

Christopher Hensley, RICP®, CES™

#4. Choose a Strategy for Your Mortgage

If you’ve got a low interest rate, you may get more value by investing than by tackling your mortgage payment. As mentioned above, paying off higher-interest debt is often a wiser choice than doubling up on mortgage payments to your lender. 

Still, we recommend doing what you’re most comfortable with. Those nearing retirement may feel better eliminating a large expense in their later years. Plus, a mortgage provides a tax benefit through the interest deduction, which is something that can be useful in your working years.

If you want to free up retirement funds using your home as leverage, you can also consider downsizing or taking out a reverse mortgage to capitalize on any equity you’ve built in your home.

#5. Create a Health Spending Plan

Formulating a strategy for covering unexpected medical bills can help ensure a more stable retirement. Fidelity Investments estimates that a couple age 65 will need $315,000 to cover health care costs in retirement. You’ll also need to consider the potential cost of senior housing and aging in place. 

Therefore, your retirement planning might include the following healthcare spending options:

• Medicare (including Medicare Advantage and Medicare Supplement plans)
• Long-term care insurance
• Health savings accounts

#6. Build Multiple Income Streams

Over half of those we surveyed said they plan to depend on Social Security and other government programs for retirement income either “heavily” or “entirely.” But 20% of those who plan to delay retirement also plan to work part-time for extra income. 

There are several good ways to make extra income during retirement, whether you create passive income using your investments, buy real estate, or work part-time. Building multiple reliable income streams in retirement adds stability and sustainability to your financial plan because it reduces the amount of money you’ll need to withdraw from your assets.

#7. Consider Retiring Gradually

You don’t have to leave the workforce completely during retirement. In fact, the number of workers aged 75 and older is growing, according to the U.S. Bureau of Labor Statistics. “Semi retirement” can keep you busy while you earn more spending money. Chat with your employer about working reduced hours or leveraging your skills to transition into the role of a consultant role, for example.

You can collect Social Security and work, but how many hours you work and how much you earn will affect your benefits amount. If you’re younger than your full retirement age, and earn more than certain amounts, your benefits will be reduced. Your financial advisor can help create a full picture of your income and a spending plan that aligns with your motivations to continue working.

#8. Consider Delaying Social Security by at Least One Year

For every year you delay receiving a Social Security payment before age 70, you can increase your monthly benefit amount, and potential future survivor benefits, for your spouse. Your amount will actually decrease if you take it before your full retirement age (67 for people born after 1960), but delaying it can equate to significant savings—about 8% per year, tax free. 

Said another way, the Journal of Financial Planning reports that monthly benefits are 77% larger, in inflation-adjusted terms, for those who claim at 70 instead of 62. For added perspective, the average Social Security payment hovers around $1,650 a month.

From Our RICP®, CES™: Delaying Social Security is great advice for almost everybody, but there are a few exceptions. If some of your employers contributed to social security but other employers, you might have a state pension. Occasionally, it makes sense to take Social Security early, especially for WEP and GPO-affected individuals.

Christopher Hensley, RICP®, CES™

#9. Have a Daily Spending Plan

Budgeting is a crucial step toward financial peace at any age, but it’s even more important in retirement. Before making any retirement decisions, log all your spending for one month to determine how much you’ll need to allocate toward expenses during retirement. This strategy can also show you areas where you can afford to cut back.

No two spending plans will look the same. How much you need to live a comfortable lifestyle will depend on your location, lifestyle preferences, and financial portfolio. Some experts recommend spending about 4% of your retirement savings every year, which should make your savings last about 25 years.

The Bottom Line: Just Get Started

The first step toward guaranteeing a more stable and sustainable retirement is to understand why it’s important to put money away for it. Then, determine how much you want to put away and commit to increasing your contributions over time. 

With just a little planning, you can significantly impact your comfort level during retirement. Remember, it’s never too late to start saving.