Many seniors are at a time in their life when they will soon enjoy the hard-earned wealth they spent decades building. But retiring in an uncertain economic climate can be challenging and even scary. If the economy worsens, it can be harder for seniors to enjoy retirement without drawing down their wealth too fast.
Luckily, seniors can take action to prepare for worse economic times and protect their retirement today. This article will dive into six ways seniors can optimize their money in an uncertain economic climate.
1. Wait to Collect Social Security
The longer seniors wait to collect Social Security, the larger their benefit becomes. Currently, you can wait until age 70 before you’re required to receive benefits. If you are still determining if waiting until 70 is possible, consider working part-time or even full-time for a bit longer. This will offer you income to live on and continue saving as you approach 70.
Additionally, Social Security calculates your benefits using your 35 highest-earning years. The higher your earnings, the larger the benefits. So, working full-time for a bit longer at your career’s peak earnings years could offer you an even larger benefit.
2. Get a Life Insurance Policy
According to LIMRA’s 2024 Insurance Barometer, 30% of baby boomers currently have a need for life insurance. Life insurance can help ensure seniors’ loved ones get the financial protection they need, especially during tough economic times. M any affordable life insurance policies may be available to seniors, including:
Final Expense Insurance
Final expense insurance is a small permanent life policy for end-of-life costs, like medical expenses and funeral costs. Death benefits are small, but so are premiums. These policies also come with cash value. Part of each premium goes into this component, which then grows tax-deferred at a fixed interest rate. As this cash value grows large enough, you can withdraw from or borrow against it. You can also obtain the full cash value if you surrender the policy, minus surrender charges.
Guaranteed Issue Life Insurance
Guaranteed issue life insurance is a type of life insurance for seniors without medical exam. This small permanent life policy has low premiums, a low death benefit, and a cash value growth component. It’s important to note that these policies may have a two to three-year lockout period. If you pass away during this period, your beneficiaries only receive a refund of the premiums you paid but no death benefit.
3. Make a Budget
Budgeting gives you the plan to stick to so you ensure you live within your means. This can help keep you out of debt and stretch your finances further. Furthermore, budgeting enables you to find expenses to cut. For example, you might discover you’re spending more than you realize on entertainment or dining out. Cutting back a bit in this area could save you money without ruining your retirement.
4. Revisit Tax Planning
Once you retire, tax planning becomes critical to maximizing your money. You’ll want to evaluate your assets and structure withdrawals in a way that minimizes taxes. For instance, if you have a Roth IRA, you may want to tap that for some of your income since withdrawals in retirement are tax-free.
Another consideration is if you have a large pre-tax account that has required minimum distributions (RMDs), like a 401k or SEP IRA. If your RMD is large and causes a significant tax burden, you may instead be able to roll this over into a Roth IRA or elect to distribute your RMDs to a charitable organization. Of course, contact a tax professional to evaluate your options. They’ll help you minimize your tax burden without sacrificing an enjoyable retirement.
5. Investing Wisely
As a senior, you likely have limited resources and may feel overwhelmed by the current economic climate. It is important to plan for the future and take into consideration the impact of taxes, inflation, and stock market volatility on saving for long-term financial security. Investing wisely can be a key component of achieving this goal.
Here are some tips to consider when investing as a senior:
- Start by making sure your assets are properly diversified. Select investments based on financial goals, risk tolerance, and time horizon.
- Examine how fees may affect investment returns and choose investments with low fees if possible.
- Don’t chase high yields that can be too good to be true; use caution when investing in alternative assets such as commodities or real estate.
- Be aware of tax implications when investing; consult a professional for advice about potential tax liabilities due to capital gains or other income sources from different investment products or accounts.
- Stay informed about changes in the markets; attend seminars or read publications about personal finance to stay up to date on investment trends and strategies that work best for your situation.
6. Seeking Financial Advice
As seniors, it is important to seek professional advice from a senior-friendly financial planner or registered investment advisor (RIA). A financial professional can explain the current economic climate and offer advice on how to maximize your retirement money. During periods of market volatility, it is important to evaluate your current investments, rebalance your portfolio to prevent too much risk exposure, and develop an emergency fund in case of sudden expenses.
The Bottom Line
If you’re worried about an uncertain economy, that’s understandable. However, there are plenty of ways to dial in your finances and get ready to weather any economic storms.
Consider deferring your Social Security as long as possible and look for a life insurance policy to protect your loved ones. If you want affordable life insurance, look for policies like final expense insurance or guaranteed issue life insurance. Additionally, make a budget, cut expenses using that budget, and revisit and plan for taxes. Take these steps today, and you’ll feel more prepared for a down economy.
