Retirement is a time of freedom for most people since you no
longer have to spend your hours working and earning a living.
But while you're free to indulge your hobbies and decide
what to do with your days, you still need to be smart about the financial
decisions you're making and ensure you adopt good habits.
To help protect your financial security in your later years,
here are three habits to put into place before leaving the workforce.
1. Living on a budget
Careful budgeting is crucial for retirees to ensure they can
cover essential expenses. That's especially true given the fact most seniors
have a fixed income and face high costs for medical services.
A budget allows retirees to allocate their dollars to the
things that matter most, while ensuring they don't run short and end up in debt
or take too much money out of retirement accounts.
Budgeting also allows seniors to spend more purposefully so
they can best enjoy their newfound freedom. For some retirees, for example,
having the money to travel or spoil grandchildren is crucial. A budget allows
them to identify cuts they can make to free up cash for these purposes.
By getting used to living on a budget before retirement,
you'll be less likely to spend without a plan as a retiree. As a bonus, you can
also budget in some extra retirement savings to bulk up your investment
accounts before leaving the workforce.
2. Living within your means
Retirees typically receive a set amount of income from
Social Security and the rest must come from savings.
To preserve their nest egg, seniors must ensure they
maintain a safe withdrawal rate and don't take too much out of their investment
accounts too quickly. One way to do that is to follow the 4% rule and only
withdraw 4% of a retirement account balance the first year, adjusting upwards
for inflation in subsequent years.
Retirees must ensure they aren't spending more than they can
afford while maintaining a safe withdrawal rate. That means living within their
means.
It's a lot easier to get used to spending less than you earn
if you start before you actually retire. This can be especially crucial if
you'll have less income as a retiree than you did while working and you must
make adjustments to your lifestyle accordingly.
3. Rebalancing your investment portfolio annually
Finally, seniors should get into the habit of regularly
reviewing their investment portfolio to ensure they have an appropriate mix of
assets.
Over time, your portfolio could become too heavily invested
in a particular type of asset or in a specific industry. When this happens, you
could be exposed to either too much or too little risk. This is dangerous for
any investor, but especially for people in or nearing retirement who may not
have time to recover from losses or wait for the market to rebound in the event
of a crash.
Rebalancing your portfolio involves shifting around your
investments so you have the appropriate asset allocation based on your age and
risk tolerance. You should get in the habit of doing this at least once per
year before retirement so you don't jeopardize the chances of your savings
supporting you.
Click here for the
original article.