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Strategies So You Don't Outlive Your Money in Retirement - Pennsylvania
Afraid You Might Run Out of Money in Retirement?
As is the case with retirees in most states, the chances of you as a Pennsylvania retiree outliving your money is greater than your passing away young and not having the chance to spend your hard-earned retirement savings on the things you want to do. Most people vastly underestimate how long they will most likely live.
This is the reason why so many retirees - about 40% - take their Social Security benefits at age 62 instead of waiting longer to receive a higher benefit. They think they'll die before they can spend the extra money.
So it is less frightening, in a perverse way, to think that you'll die young but have plenty of money in the meantime. When you do not know how many years you have left, and few of us do, thoughts of outliving your money can leave you feeling fearful and worried. To alleviate some of that worry and fear, here are some strategies to utilize so you don't outlive your money in retirement, particularly in Pennsylvania.
Set Up a Plan in Pennsylvania
You can't know where you are going unless you know where you are now. It's easy to bury your head in the sand and just hope for the best or just hope you keel over before you run out of money. But neither of these is a solid plan to ensure that your money does not peter out before you do.
So if you've not done any retirement planning, aside from knowing you want to play golf or travel, or if it's been a few years since you established your retirement plan, then now is the time to start a plan or revisit the one you already have.
First, you have to have a solid idea about (a) what your retirement income will be and (b) what your retirement expenses will be. These might vary down the road, but a plan now helps you understand where will be financially when you retire and helps you see where you might need to make some adjustments.
Write down every expense you think you'll have when you retire, including hard expenses (utilities, car payment, etc.) and extra expenses (haircuts, vet bills, home repairs, etc.) and then add 10% to it. Adding 10% will give you some cushion. Better to overestimate than underestimate how much money you'll need.
Many financial planners say you'll need 80% of your current salary to have a comfortable retirement. This is a very generic figure because that 80% might be more than enough for someone who has paid of his mortgage and car loans. And it might not be enough for someone with a mortgage and plans to travel around the world.
Once you've figured your expenses - don't forget health insurance premiums, the Medicare deduction, tax payments even if you've paid off your mortgage, the never-ending HOA payment, etc. - then calculate your income. How much Social Security will you receive (if you aren't sure, check the Social Security website)? Will it be enough? If it won't be, should you delay retirement until it will be enough (waiting until age 70 is ideal).
Will you work part-time? If so, are you aware how that income can affect your Social Security benefit? Hint: Social Security imposes a wage cap for people who work and collect benefits before their full retirement age (FRA). Also know that if do not have at least 35 years of Social Security earnings, then you may not be getting as much money as you think and want to work a few more years.
Opt Into Your Pennsylvania Company's Pension
If you work for a company with a pension option, then by all means opt into it. Doing so can mean extra revenue at retirement time. Just make sure that you don't take a lump sum payment when it comes time to start collecting the money because it is too easy to blow through a large pile of cash (trip to the Caymens, anyone?). While it is not as exciting as receiving a lump sum of cash at one time, opting for monthly payments means a steady income during retirement and can help keep you from outliving your money.
Keep in mind, too, that even if the company you work for goes belly up, chances are good that you'll still receive your payments because most private plans are insured by the Pension Benefit Guaranty Corporation. Lump sums are not insured.
Reduce Your Debt
Do whatever you can to enter retirement without any debt. If you are able, pay off your house mortgage before you retire. That will eliminate your biggest monthly bill, and you can tap into more of your home's equity down the road when or if you have an emergency.
Although it is hard to do, living within your means, or under your means, now, even if you are in your 20s or 30s, will pay off big time when you retire and help keep you from outliving your money, particularly in Pennsylvania.
Another tip? Pay cash for as much as you can instead of using credit cards. Why? Because it is very easy to get in over your head when you use your credit card for purchases. Before you know it, you're looking at retirement just a few years down the road and you still have a lot of debt to pay off. No one is going to discharge your debt for you just because you got old. If Social Security is going to be your biggest retirement revenue source, then it is going to be very difficult to pay all your daily bills AND pay off debt from years ago.
Save as Much as You Can and Invest Wisely
Save, save, save and invest wisely. Buy coffee at the local burger joint instead of the high-end coffee shop on the corner (the coffee tastes the same). Buy a used car with a warranty instead of a brand new car and tuck away the money you saved. Mow your own lawn instead of hiring a service. Take one vacation a year instead of two. Subscribe to one or two streaming services - not six - and get rid of your cable. Ditch the landline - who needs a landline anymore? Buy your own groceries instead of having them delivered. There...are...so...many...ways...to...save...money. As the shoe company says, just do it.
Ideally, keep three to five years of worth of expenses in a liquid asset like a savings account or a money market fund. There is little to no return, but you will have a have an easily accessible emergency fund. And one day, when you expect it least, an emergency will come.
Invest wisely. Talk to a financial advisor to whom you pay either a flat fee or an hourly rate (not to one who charges a percentage of the amount of money he manages). Lay out your retirement goals and let him develop a plan for you. Make sure it makes sense. You don't want any flashy investments. You want steady growth and protection if the market takes a turn for the worse.
Be pragmatic about savings withdrawals. Take out no more than 4% per year. If you do not have an IRA, get one. If you do have an IRA, add to it. Investing $1,000 a year is not enough. Avoid the get-rich schemes and look for a slow but steady track record.
Don't Retire
If you don't want to run out of money in retirement, particularly in Pennsylvania, then don't retire. At least not yet or at least not until you are financially ready. It is surprising how many people suddenly hit a magic number - 62, 65, whatever it is - and think, wow, time to retire! Except they can't, because they haven't planned ahead. Or they retire anyway - give up their job - and then realize they don't have enough money to live on.
There is no sin in working well into your 60s or even 70s. Most people don't want to do that, but work gives purpose and keeps you connected to community. You do not have to keep the same job you've had for the last 30 or 40 years. You can pick up a part-time job, maybe working with kids, driving a school bus or shelving books in a library. Doing so will keep you engaged, and it will bring in income. It can even help boost your Social Security benefits because you'll be paying FICA taxes on that income. Just be aware of Social Security's yearly wage cap.
Consider a Pennsylvania Reverse Mortgage
If you own a home, are at least 62 and have equity in the home, then you can qualify for a reverse mortgage. These types of loans often gets a bad rap because they can have high fees and there are rules to follow - for example, you have to live in the home, keep it up and pay property taxes - but they can be a life saver for people who are afraid of outliving their money.
There are no income requirements for a reverse mortgage, and you can get either a lump sum of money (which you need to use wisely) or you can opt for a line of credit (better choice). You keep title to the home, and you - or your heirs - can never owe more than the house is worth because a reverse mortgage is a non-recourse loan. This type of mortgage is not for everyone, but it is an option to consider if you find yourself running out of money in retirement.
Conclusion
So there are strategies and tactics to employ to help you keep money in your pocket as you leave the workforce and enter the third stage of life called retirement, particularly if you are in Pennsylvania. With planning and careful management, you can have enough money to enjoy your golden years as long as they may last.
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