4 Tips for Ensuring Financial Security in Retirement
Worried about running out of money in retirement? Discover invaluable advice from top experts, including an Owner and Founder & CEO, who share their secrets to maintaining financial security. Learn why starting to stress-test your retirement budget now is crucial and how maximizing contributions to 401k and IRA plans can make a significant difference. With four essential insights, this article is a must-read for anyone planning for a financially secure retirement.
- Start Stress-Testing Your Retirement Budget Now
- Three Strategies for Financial Security in Retirement
- Pay Off Your Mortgage Before Retiring
- Maximize Contributions to 401k and IRA Plans
Start Stress-Testing Your Retirement Budget Now
Here's the most crucial piece of retirement advice that too many people ignore: Start stress-testing your retirement budget NOW, not later. Think of it like a fire drill for your finances.
Here's what I mean: Take your current monthly expenses and live on your expected retirement income for three months straight. If you're planning to live on $4,000 a month in retirement, force yourself to do it now. Park the extra income in savings. This real-world test will show you exactly where your plan holds water and where it springs leaks.
I've seen too many people hit retirement with rosy spreadsheet projections that fall apart when they meet reality. The coffee runs, Amazon impulse buys, and "little extras" add up fast. Plus, you'll discover expenses you never considered - like how much more time at home means higher utility bills.
Action steps to implement this right now:
- Calculate your expected monthly retirement income from all sources (Social Security, 401(k), pension, etc.)
- Set up a separate "retirement test" checking account
- Transfer only your projected retirement income amount into it each month
- Live exclusively from this account for three months
- Track where every dollar goes and adjust your retirement plan based on what you learn
Think of this as your financial reality check. It's way better to discover you need to adjust your plan now - when you still have time to save more, cut costs, or maybe work a few extra years - than to find out after you've already handed in your resignation letter.
Want to supercharge this strategy? Run your test budget during high-expense months like December or when property taxes are due. That's when you'll really see if your retirement math works in real life, not just on paper.
Three Strategies for Financial Security in Retirement
If you're worried about running out of money in retirement, 3 main strategies can help you live on less for longer:
1. Retire later. If you can work even a few additional years, it can help you if you're retiring with less in your investment accounts than you had hoped.
2. Work part-time. Find an enjoyable part-time job during retirement. Up early and love coffee shops? Get trained as a barista. Let your passion be your guide. It doesn't need to be a lot of money. Every dollar coming in is a dollar you don't need to have saved up.
3. Lower your cost of living. If you have an extra room, can you rent it to an athlete or an international student? Can you put a rental unit in your basement? If not, can you downsize, or find a roommate? Golden Girls is a trend (mainly amongst women) throughout the world - that is 2-6 women renting or buying an abode collectively.
Pay Off Your Mortgage Before Retiring
If you own a home, see what it would take to pay it off by retirement. Your mortgage will be your biggest expense during retirement, so eliminating it will allow your monthly income to stretch further. You might already be on track to pay it off by retirement - avoid refinancing the home if that would reset your 30-year mortgage. If you are a few years short, play around with a mortgage pay-off calculator to see how much extra per month you should put towards the mortgage principle to pay it off by the time you retire.
Maximize Contributions to 401k and IRA Plans
Using a 401k and an IRA are two powerful tools to prepare for retirement. Contributing to both these plans is an ideal way to ensure financial security. Your 401k plan may offer an employer match as part of their retirement plan. That match is "free money" from your employer for contributing to their plan. Take advantage of that match and contribute to your 401k. In addition, you can contribute to an IRA each year. Traditional and Roth IRA accounts are available. For 2024, the contribution limits are $7,000 for those under age 50 and $8,000 for those 50 or older. Those contribution limits remain the same in 2025.
