The current 40-year high inflation rate is evident every time you buy groceries and pay for your utilities, and we are all impacted by it. Not only does inflation affect the prices of consumer goods in the short term, but it can affect your future by impacting how much your retirement dollars are worth.
As CPAs, we have the unique opportunity to view our clients’ general financial health and make recommendations. We already know most people are grossly underprepared when it comes to retirement and combining this fact with record-level inflation may make issues worse. So, we put together a list of things you can do today to ensure you have enough money in your later years.
Do a self-analysis. Take advantage of the free financial tools online and know how much you need to save and invest each month. Whether you make $50K or $500K+, the odds are many of you should be spending less and saving more. You need to know where you stand today to make informed decisions about your future.
Understand your cash flow. Make a chart listing your monthly post-tax income and expenses. If revenue isn’t higher than expenses, start cutting costs, one mochaccino at a time.
Understand your age-related risk. Your savings goals and investment risk change based on your age. Understand what you should be doing based on your age and risk level for each decade of your working life. Most importantly, it’s NEVER too late to start saving. Start today, put a little more back each week and increase it regularly. You will not miss it! We will cover this topic in more detail in another article.
Save, Save, Save. Create a budget and put the first 10% or more of your income in savings. Make a goal to max out your 401K or IRA contributions. If you need a starting point, put in as much as your company matches. Don’t think about it. Just do it. You’ll get free money from your employer, and you won’t miss your pre-tax contribution. Give yourself an annual raise and an additional raise anytime you get a bump in salary or a promotion with the goal of contributing at least 10% to these accounts. Your future self appreciates the income.
Look at your investment statements every month. Be informed, keep an eye on your money, and adjust accordingly. This is the long game, don’t take the money out or stop investing when the market takes a dip, you are buying more, and when it rises, you are earning more.
Make dividend stocks part of your retirement plan. They are less risky and don’t pay off in large sums of money, but dividend-paying stocks provide a reliable source of passive income during retirement. While it’s great to have a large amount of money on hand, retirees risk their savings deteriorating. Rather than just relying on your savings, layer your monthly income stream with dividend stocks.
Consider a long-term care insurance policy. It generally covers health care costs not covered by health insurance or Medicare, and if you must pay for it out of pocket, your retirement savings can diminish quickly. No need? Think again. About 70% of Americans in retirement will require some long-term care. If you are approaching, or are in, your 50s, it’s time to shop for a policy before you need it. The younger and healthier you are when purchasing a policy, the better your coverage and rates can be. Be well informed when shopping for it and understand what you are buying. Ensure the insurance company is stable and will still be around when you need to use it.
The key takeaway is that you need to plan today to get something back tomorrow.
We can help. These guidelines are just suggestions to get you started. Talk to a CPA (like us) with experience in retirement planning. Give us a call, and let’s set up a time to review your options.