The Modern Retirement Handbook: What’s New and What to Know
Retirement isn’t what it used to be. Very few people leave a company after decades of service, accept a thank-you gift, and live off a pension or Social Security until they die. Just like everything else, retirement is a lot more complicated now. Luckily, we put together a retirement handbook.
To start, the number of people who work past retirement is at a 57-year high. Some people want to work, while some work to pay off debt or meet expenses.
In the past 20 years, debt for people over age 70 in the U.S. has increased by 543%, the largest debt jump for any age group. The increase was only slightly less—471%—for those in their 60s. Student loan debt alone jumped 886% for 65-year-olds between 2003 and 2015.
Whether or not you have debt, retirement planning today is complicated. The best way to approach it is to consider your individual circumstances.
Understanding Your Expenses
The basic rule of thumb is that people need about 80% of their pre-retirement income to retire. But as the AARP puts it, you need to approach that rule with a flexible thumb. Not everyone spends less in retirement, especially in the early years when you have no work schedule and just as much energy (or nearly as much).
Some people even spend more in early retirement, especially if they’re healthy and active. Many retirees love to travel, and one trip can cost thousands. Even if you’re a homebody, will you want to make renovations—add a hot tub, redo the backyard, or otherwise make your time at home more pleasant?
Don’t forget the necessities, including medical care as well as debts. What are your minimum payments, and how quickly will you need to pay them off?
Paying Off Your Debt
Retiring with debt can be scary, but paying it off as soon as possible isn’t the best strategy for everyone. If you’re younger, you might be OK backing off on your retirement savings so you can pay down debt more aggressively, according to a financial planner quoted by The Washington Post.
The closer you are to retirement, however, the riskier it is to spend extra cash paying down your debt. Some financial advisors suggest that you take it debt by debt. If you have high-interest debts like credit cards or personal loans, it’s more beneficial to pay them off early, even if you have to delay your retirement handbook.
Some types, like mortgages and student loans, are easier to handle in retirement because interest rates tend to be low and payments are relatively stable. If you have this kind of debt, you may not have to rush to pay it off. Instead, you can look at your retirement income and fixed expenses, and budget for debt repayment just like you did before you retired.
What About Your Mortgage?
According to the AARP, around 44% of people in their 60s have a mortgage, and up to 32% suspect they’ll be paying it off for at least eight years. On the other hand, 20% believe they’ll take less than a year to finish paying it off.
There’s no hard and fast rule about whether you should pay off your mortgage before you retire. Some people like to enter retirement with no debt at all, not even a mortgage—but don’t forget that your mortgage isn’t like other debts. In some cases, it can even be an asset.
If you have a mortgage, you can take out a home equity loan or home equity line of credit to cover emergency expenses or make larger purchases like that dream trip. Of course, any home equity borrowing is another debt, so you’ll have to work that into your retirement handbook. You can also use your mortgage to do a sale-leaseback, meaning that you sell your home to a company that will rent it back to you.
How Should You Invest?
Another feature of modern retirement is the active investor. It’s more complicated to invest as a retiree, only because you have to be more careful about managing risk, but the returns can be well worth it.
Patrick Murphy, CEO of John Hancock Retirement, tells U.S. News & World Report that the most important thing for retired investors to remember is that big returns usually come with big risks. He advises retirees to build diversified portfolios, meaning that they invest in multiple types of products. This allows for a balance between safer investments and more growth-oriented ones.
Growth-oriented investments can be important in retirement because they help retirees to keep up with inflation. And since a third of today’s 65-year-olds will live to at least 90, according to the Social Security Administration’s estimates, inflation is a real concern. Higher-yield stocks can help you to keep up.
Another advantage of higher-yield investing is that when your investments grow more, you can build a greater financial legacy to leave behind.
What Are Your Income Sources?
Your investments can generate some of your retirement income, but where does the rest come from? For most people, Social Security replaces only 40% of past earnings, and that number is likely to slip. Find out how much you can expect to collect per month.
You may choose to work to supplement your retirement income. That’s also becoming more common. Just remember that there may come a day when you can’t work. Make sure you have savings or other ways of meeting your expenses.
As always, retirement handbook planning today means comparing your expected income to your expenses. The difference is that today’s retirees are more likely to have complex situations—outstanding mortgages and other debts, active investments, and perhaps a longer active retirement with its inherent expenses.
Even income is more complex. More people work in retirement, and many actively invest as a way of bringing in money. No two retirees are alike. Make a plan suited to your needs, and consult a professional if you have questions. Your well-being in retirement is worth the expense.
Talk to a financial advisor on how best to handle retirement and your expenses and be sure to learn about all options available to you.