With many baby boomers reaching retirement age, financial planning has become even more important for this generation. (Boomers are born approximately between the years 1946 and 1964).
While Social Security provides some of your retirement income (see the ‘Social Security Quick Calculator’ here), it is rarely enough for a happy, secure retirement.
Research shows…
According to the National Bureau of Economic Research, one of the reasons that this generation falls behind is due to their financial (il)literacy.
Individuals who are unaware of different types of interest rates, stock options and risk management techniques were less likely to be prepared for their retirement.
From talking to a financial planner to learning about investments, baby boomers can take control of their finances and prepare for a rewarding retirement.
1. Speed Up Your Retirement Savings
Most financial planners recommend saving at least 15 percent of your income for retirement from the moment you enter the workforce.
While this is the ideal, few people actually achieve this goal. Luckily, most people reach their peak earning years later on in life.
During this time, it is easier to save money because you make more. If the kids have moved out and your mortgage is close to paid off, you can easily start to recoup lost retirement savings.
Financial planning for baby boomers is made easier by the fact that the United States government wants you to save.
Are you over 50 years old?
If you are over the age of 50, Uncle Sam lets you add extra money to your 401(k) and IRAs so that you can catch up.
As a rule, you can add an extra $5,500 to your 401(k) and $1,000 to you IRA every year until you retire. Once you do this, you qualify for a tax break or get tax-free earnings on your account. Baby boomers financial needs change, so make sure to understand expenses and lifestyle.
When you reach the age of 59 ½, you can withdraw the money without paying a penalty.
2. Put Yourself First
You love your children and grandchildren, but they will have years to prepare for retirement and pay off educational debt. While you want to help out, you have to focus on your own financial needs.
Ameriprise Financial recently conducted a survey that showed that 92 percent of baby boomers gave financial support to their adult children.
- A total of 71 percent of baby boomers offered to help with college costs.
- Out of the baby boomers surveyed, only 24 percent said that they were putting away money for their future.
Helping out is noble, but it will not help you prepare for your retirement.
While your child can get a loan from the government and car loans are at historic lows, you do not qualify for financial aid for retirement. You have to focus on yourself in the short term if you want to reach your financial goals over the long run.
3. Start Working on Your Estate Plan
While financial planning is great, it will not confer immortality.
At some point, you or a loved one will pass away.
When that happens, your family will be focused on recovering from their grief. Having to worry about probate court and estate taxes will be the last thing your loved ones want to focus on.
To make sure that your family is cared for no matter what happens, plan ahead.
Even if you only have a small nest egg built up, an estate plan will make sure that your assets go to the right people.
Designate a beneficiary and create a will. You may also want to talk to a financial adviser about putting your assets in a trust so that your family skips the cost and time of probate court.
Likewise, make sure that you have prepared for any eventuality by creating a durable power of attorney and an advance health care directive.
4. Plan on Retiring Early
You may have a set age in mind for retirement, but you should plan like you are going to require years earlier.
Interest rates change with the economy, so planning to retire early means that you will reach your original retirement goal for sure.
In addition, individuals who are over the age of 55 are more likely to be out of work for longer if they become unemployed. If you have additional funds saved up, it will give you a heightened level of financial security and freedom.
5. Think About Long-Term Care Insurance
For many baby boomers, long-term care insurance is frequently forgotten about.
This type of insurance is designed to help if you become ill and need extra care. While Medicaid and health insurance may help, they are often not enough for assisted living facilities or home care costs.
Long-term care insurance allows you to get the best care without having to dip into your retirement savings.
6. Take a Look at Your Investment Portfolio
As you get closer to retirement, your investment portfolio needs to change. When you are just starting out in life, you can choose investments that have a higher risk level because you have more time for the investment to grow.
Once you are near retirement age, you cannot afford to wait for your portfolio to recover after an economic downturn. Since planning out your investment portfolio can be challenging, this step is best done with a financial planner.
7. Rethink Where You Live
While you may love the area you live in, it might not be the best choice as you age. Suburban areas are often terrible for retired households because they lack the public transportation that you need if you become unable to drive.
The household changes over time
Plus, many households no longer need large homes once their children move out. A smaller home can help with your retirement planning. In addition, moving to a new area can place you near the hospitals and bus routes that you may need some day.
If you want to enjoy financial security and a comfortable retirement, you have to start planning early. Even if you have put off your financial goals and saving for retirement, it is never too late to begin.
Review your budget and discuss your goals with your spouse or loved ones. By taking action now, you can ensure a happy, financially secure future for your family.
Why did I write this article on financial planning for baby boomers and their finances?
Two reasons:
#1) We all age, and you should take action on the above – while you execute on #2 below.
#2) Use your experience and knowledge and become an Entrepreneur or business owner. While there are no guarantees in life, this is an exciting time to be alive! Business consulting is BIG! (Gartner).
There are many options for you: a business adviser, consultant or a professional business or life coach are just a few options. You can easily hire talent to build products and solutions to help other people succeed. You are ensured money into old age if you take action now. No excuses!
Sources:
https://newsroom.ameriprise.com/news/baby-boomers-dole-out-cash-to-family-members-despite-uncertainty-about-their-own-financial-future.htm
https://www.forbes.com/sites/feeonlyplanner/2015/06/05/five-easy-pieces-of-financial-advice-for-baby-boomers/#2bc7a5816db0
https://www.forbes.com/sites/financialfinesse/2013/01/09/7-steps-for-baby-boomers-to-take-now/#518fb3873412
https://www.nber.org/bah/winter07/w12585.html
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