Your 60s are a time of tremendous change. You may be preparing for retirement, entering retirement or recently retired. It’s a time where your finances may also be changing; a crossroads of sorts.
So, what can you do with your finances in your 60s to enjoy a good retirement experience?
If you’re just entering retirement, you may have a bucket list of things you’d like to do. But you’ve put these off while you were too busy working or the family was still young. Your 60s are a time of tremendous flexibility and freedom. It may be like nothing else before.
It may span another 30 to 35 years. Create a vision for this phase of your life. What would you be doing? Where would you be living and with whom?
If you have been working till now, your income may be reduced. The sources of income at this stage of life include:
Public Pension System
Social Security in the US and Canada Pension Plan in Canada.
Employer Pension Plans
If you’re planning for your retirement, get as much information as you can from your human resources/pension department at work about the pension they have for their employees.
Is your employer pension plan a defined benefit plan or defined contribution plan? Most employer pension plans are definedcontributions in which the employer and employee both make contributions regularly.
A defined benefit plan is one in which an employer promises a specified pension payment predetermined by a formula based on the employee’s earnings history, tenure of service, and age, rather than depending directly on individual investment returns. Many governmental and public bodies and a large number of corporations provide defined benefit plans.
In 2018, almost 26% of seniors in America aged 65 to 74 were employed. Many people choose to continue working well into retirement. Either to supplement their income or for social contact.
Financial Assets in Registered Retirement Savings Plans
These are in vehicles like IRAs, 401(k)s, and annuities. A survey by Pension Rights Center found that 66 percent of retirees in America currently receive income from these types of financial assets.
Investments/Savings That Are Not in Registered Plans
These savings comprise after-tax money you’ve put away that is not in any registered retirement account.
Some retirees are choosing to supplement their income with a reverse mortgage. A reverse mortgage is a loan secured by the equity in your home. It is designed for older homeowners. It is allowing them to obtain cash without having to sell their home. The set-up fees are high. However, upon the sale of the house, the loan is paid back from the proceeds of the sale.
If you anticipate receiving a fixed income for retirement, it makes sense to pay off as much debt as possible while you are still working, unless it’s tax-deductible. If you currently have non-tax-deductible debt, seek professional advice on how you can restructure your debt. Have a plan to pay off as much as you can before retirement.
At some point in your retirement, you will be questioning whether you should be downsizing. However, if you live in a city that has experienced an explosive increase in real estate prices, a substantial amount of equity lies in your home. Should you downsize to access the equity in your home? The answer lies in the vision you have for your retirement.
If you have put off planning your estate up to this point, retirement is a time you must look into how you want to deal with your assets once you die. An estate lawyer is best for helping you design an estate plan that reflects your wishes. A good estate plan comprises of:
A Will is a legal document a lawyer prepares. It states your wishes for who gets your assets when you die. It also names your executor, the person who will carry out the terms of your will.
An Enduring Power of Attorney
A Power of Attorney is a legal document you sign granting a person(s) the authority to manage your money and property on your behalf if you are no longer mentally able to manage it yourself. This could be caused by illness or disability.
A Living Will or Health Directive
This is a document that allows you to specify “end of life” care ahead of time. What kind of medical care would you want if you were no longer able to express your wishes? It is a way to tell your wishes to healthcare professionals to avoid confusion later on.
It also explains which treatments you want if you’re dying or unconscious. When planning your estate, you need to ask yourself, how you would like people to remember you after you die.
The most significant concern in retirement is health care costs. While working, you may have benefitted from health care coverage by your employer. However, at retirement, the extent of this may be diminished or stopped altogether. In addition, as one ages, the need for health care coverage increases.
Asset allocation is an investment strategy adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals, and investment time frame.
Look closely at how your portfolio reflects your changing income needs. In retirement, you may need to draw from your investments. A portfolio heavily weighted on growth investments such as stocks will be more volatile and riskier than investments such as government bonds.
When you are retired, you may want to increase the percentage of your portfolio that is in less volatile investments. During a prolonged market downturn, you do not want to be forced to access funds that have had a significant drop in value.
By the time you hit your 60s, you may have seen substantial changes in your family life. A divorce or two. A remarriage. The death of a spouse. The arrival of grandchildren. These changes would have a substantial impact on your financial life. Especially your income and your estate plan.
It is time to see your financial advisor on a regular basis to ensure you deal with these transitions.
List your goals for the next 3, 5, and 10 years. How would you like to live this second half of your life? What would you like to do? Where would you like to live? Who would you be living with? These questions take on a greater sense of urgency at this stage in your life.
Do you feel your finances empower or hinder you at 60 and beyond? How well is your financial plan designed? Do you feel confident you will have enough resources until the end of your life? Have you created all necessary documents for asset distribution? Please leave a comment to help the community.
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