Being financially literate is never more important than in your Golden Years. Seniors are constantly in a battle to stretch their finances to meet ever increasing needs from a low fixed income. This situation doesn’t crystalize for many until they hit retirement and have to deal with the reality of rising costs and a fixed income. Knowing your best course of action from the very beginning can make a huge difference on how you spend your retirement years.
Budgeting sooner rather than later, be debt free and have cash flow (pension, benefits and investments).
Just like planning a holiday, a wedding or any other major financial event, your retirement should be a major planned event, one that keeps requiring your attention. Since no one truly knows when their time is up, planning in retirement can be a difficult event to plan for. Yet without some sort of plan, you most likely will end up without funds a lot earlier than with a great plan. Budgeting is key to understand where your money is going and how to manage it. Many Aussies do not budget, but if you need your retirement nest egg to last 20 years, budgeting and wise investing is key. The sooner you start the better, but just starting is important regardless of age.
The first thing many seniors do is rush into collecting their pensioner benefits. The system is complex and confusing, but assessing when you start collecting is a very important first step. With spousal benefits and ‘file and suspend’ opportunities these decisions can have long term effects on your financial health. Spousal benefits can get tricky, especially if you are divorced. If a marriage lasted ten year or more, you are still entitled to spousal benefits and if you had multiple marriages it’s even more complex. File and suspend is also a well-used tactic for higher wage earners in a marriage to enable the lower wage earner to collect a spousal benefit. The higher earner files and then suspends collecting their benefits while also enjoying an incremental increase in the benefit depending on when they actually start collecting up to the age of 70. In either case you need to be aware of your budgeting in order to make these decisions.
Bonds vs the Market
The bond market has been extraordinary since the global recession of 2008, however, this is set to change. Of course bonds are generally safe investments, but knowing when to start changing your portfolio is important. Jumping into the stock market can also be risky even though the upside has more potential. There’s a reason why the stock market offers better rewards, its downside is also larger. Timing the market is always a bad choice especially in retirement when your window for investing is much shorter than at the beginning of your life. With a lot less room for error and mistakes, being extra conservative with your investments at this stage in your life is more important. The best case scenario is ensuring you have a full diversified portfolio between cash investments, bonds and stocks according to your risk tolerance.
Lastly, at this stage in your life, unfortunately seniors are seen as ‘easy marks’ for criminals and fraudsters. Avoiding scams is just as important as planning your retirement strategy. Make sure to run all investment opportunities through a trusted financial advisor and a family member. Getting two sets of advice can often help you make the right decisions.
Anything that sounds too good to be true probably is – don’t engage or sign any contracts without a second opinion and don’t be pressured by aggressive sales people or sentimental stories that many crooks use.