Money Management for Seniors

The right strategy for effective money management is never set in stone. If your strategy doesn’t evolve with your financial needs, then you won’t be able to do the best you can for yourself and your family. And one of the biggest financial changes you’ll face during your adult life will be the transition from full-time employment into retirement as a senior.

The information below can help you understand the four biggest concerns you’re going to face with your money during retirement and what you can do to be successful. If you have questions or you’re struggling to overcome challenges with debt, we can connect you with the solutions you need to achieve stability and reach your goals. Call us or complete a help request form to tell us what you need.

Key Concern No. 1: Healthcare Costs

By far, the biggest concern seniors have during retirement is the cost of healthcare services. As you get older, your healthcare costs naturally increase. At the same time, as you transition from your career into retirement, you lose your employer’s insurance benefits and move to private insurance and Medicare.

Make sure you have an accurate understanding of the healthcare costs you can face and the kind of support you’ll have. Make sure you understand your policies thoroughly and ask questions. For instance, in some cases the cost for continuing care after something like stroke will only be covered by Medicare if the patient is showing documented improvement. This means you won’t be covered for in home care or physical therapy if your condition is permanent – and that’s a problem.

You also need to have a plan for what you want to do IF you have to transition from complete independence to supportive care. Don’t just assume you’ll stay self-sufficient, because you’ll have bigger problems if you have to make adjustments after a healthcare issue has already occurred. Whether your plan is to move in with your children or relatives, pay for in-home care or move into a retirement or assisted living community, make sure your insurance and savings can support that plan.

You also need to take steps to establish your wishes for care if you are incapacitated or unable to voice decisions for yourself. Having detailed directions for long-term care and notarized documents to establish medical power of attorney and finance power of attorney (which can be the same person or two different people) is imperative. Make sure everything is clear and documented and that the POA that you choose understands your wishes.

Key Concern No. 2: Income and budget

Over the decades that we work, most of us get used to earning regular paychecks. We get into budgeting and spending habits based on the idea that the next installment of money will be here by X-date. We also get comfortable with the idea that if we need more money, we can simply do more work to get it.

But once you retire, income won’t come from paychecks – it will come from benefit payouts, Social Security, asset dividends. And if you don’t have enough money, you may or may not be able to take on a job to get the extra you need, depending on your health and situation.

Fact: Data shows you will need at least 75% of your employed yearly income to support your lifestyle during retirement.

This usually means you need to be even better with budgeting than you were when you were working. Here are some tips to help you manage income and cash flow effectively:

• Make sure before you retire you understand when you have to start taking money out of accounts like your 401(k) or IRA. Plan when you want to make those withdrawals around your bills and other monthly expenses – just like you would with a paycheck.
• Don’t depend on Social Security. If Congress changes the rules, the amount you receive could change at any time. So you need to have other money coming in or you’re at risk.
• If you decide to get other payouts from something like a reverse mortgage, set up the money you receive to offset low cash flow periods in your budget. For instance, if your Social Security comes in one week and a 401(k) happens in the same week, then set up the HECM payout for two weeks later.
• Consider need for lump-sum withdrawals carefully. If you make a big withdrawal, make sure it’s worth it. You don’t want to spend frivolously in your 70’s and then struggle when you live into your 90’s.
• If you can still work, find something that you feel is rewarding with the hours you need to supplement your income. A job can keep you active, provide supplemental income, and may even give you things like healthcare benefits, depending on the position you get.

Key Concern No. 3: Debt

Debt can be a big problem in retirement because more debt means higher bills – which doesn’t really work when your income is lower. So you need to be vigilant to keep debt minimized both just-prior and during retirement.

Here are some things to know:

• If possible, pay off your mortgage before you retire. This will give you the peace of mind that you own your home outright and just have to keep up with the insurance and taxes. it also gives you a major asset to sell for pure profit if you really need the money or need to move into assisted living.
• Be really careful about credit card debt. With revolving payments that increase or decrease based on what you owe, these bills can easily overwhelm your budget. Don’t rely on credit cards and keep your balances paid off.
• If you want to go back to school or take college courses that’s great, but be careful with student loans! Remember that you won’t be going into a career to pay off that debt, so if you can’t afford to pay for the classes outright, how are you going to afford paying back the loans?
• Get the facts on a reverse mortgage before you take one out. These can be great tools for giving you a way to use the equity you have in your home without facing payments or a threat of default. However, while you won’t have to make payments, it will have a significant impact on your estate and your inheritors.

Key Concern No. 4: Your estate

One major concern you’re going to have in your golden years is the legacy you leave. In addition to establishing power of attorney (POA) to make decisions if you’re incapacitated, you also need to establish a will and set up your finances for what happens once you’re gone.

A signed, witnessed will is necessary to keep your spouse, children and relatives from fighting over your estate. You should also discuss your estate plan and POA decisions with everyone involved. This is one of the hardest conversations to start with your kids in adulthood… but it’s even harder for them to start it, so you need to be the one to make sure the discussion happens.

Here are some things to know about your estate:

• You don’t need an attorney when you make a will. In fact, by federal law you only need a signed and dated will that was witnessed by at least two people. However, signing with an affidavit from a notary public can help you avoid problems.
• Any money in your estate will be subject to claims by your creditors. So prior to money being distributed to your inheritors, creditors and lenders have a set period of time (varies by state) to make claims that reduce your estate.
• If you want to protect the money you plan on giving to an inheritor, consider setting up a trust. With a trust, the money you put in is no longer legally yours, so your creditors can’t make claims against it.
• Once you pass away, a reverse mortgage comes due. The property must be sold to repay the money borrowed or your inheritors can pay off the reverse mortgage and refinance the home themselves.