5 Things to do to Improve Retirement

Some of them may surprise you

Adapted from an article by Christy Bieber.^₁

1. Increase your retirement contributions

Traditionally, experts recommended saving at least 10% of your income for retirement. Many people aren't meeting that goal. And many financial professionals now warn that you should aim closer to saving 15% of income because of lengthening lifespans and gloomier projections for investment returns in upcoming years.

No matter how much you're saving, it won't hurt you to save a little more so your nest egg is bigger during retirement. And you don't need to increase your savings by that much to make a big difference in the amount you end up with.

If you up your annual savings by just $1,000 -- a mere $83.33 a month -- this $1,000 increase in annual savings alone could turn into a nest egg of $92,760.² over 30 years, assuming a 6.5% return on investment.

2. Open a health savings account

Healthcare is likely to be one of the single biggest costs you face in retirement. In fact, the Employee Benefit Research Institute estimates a senior couple who needs lots of prescription drugs should have $400,000 saved to have a chance of affording their care during retirement.^₃

One of the best ways to make sure you can afford healthcare costs is to open a health savings account. You're eligible to open an HSA if you have a qualifying high-deductible health plan, either just for yourself or for yourself and your family. The specific requirements for opening an HSA -- and the contribution limits -- change each year. The IRS released their information sheet with details for  2019 which can help you determine if you can contribute more or less this year.⁴

The major benefit to opening an HSA is you get tax breaks on both ends -- when you put money in and when you withdraw it. With most other tax-advantaged savings accounts, including Roth or traditional 401(k) and IRA accounts, you either get to invest with pre-tax dollars or you get tax-free withdrawals, not both.  With an HSA, as long as you take the money out to use for qualifying healthcare expenses, you can invest with pre-tax dollars and make tax-free withdrawals. That provides huge tax savings.

If you end up healthier than anticipated and don't need to spend your HSA money on medical care, you can take the money out penalty-free and use it for any purpose after age 65. You'll just pay taxes at ordinary income tax rates on money you withdraw for anything other than medical services.

3. Develop a good diet and exercise regimen

There's never any guarantee you won't get sick or hurt during your working life or as a retiree. But there are lifestyle habits you can adopt that reduce the risk of illness or injury. This includes eating healthy, giving up smoking, and getting regular exercise.

If you take steps to stay healthy now, hopefully, you can lessen the chances of serious health issues in retirement -- or at least delay the onset of medical issues. Close to 4 in 10 retirees responding to a Nationwide survey indicated health issues are preventing them from having the retirement they planned.⁵ It's also especially important because, among those having health issues, 80% said their troubles began earlier than they expected.

If you can stave off health problems by maintaining healthy habits, you won't have to worry as much about the high cost of care as a senior -- and you can enjoy doing activities you always dreamed of in retirement.

4. Get serious about repaying debt

More seniors than ever before retire with outstanding debts.⁶ Seniors owe money on all sorts of things that many older people didn't owe in the past, including mortgages, student loans, car loans, and credit cards.

If you retire with debt you still have to pay back, a good portion of your fixed monthly income from Social Security and retirement investments will likely go toward paying interest. Your money won't stretch as far when it's enriching your creditors and you'll have less to live on because of those monthly payments you have to make. You'll also have a lot more stress about making sure you can pay your bills.

If you want to set yourself up for a more secure life as a retiree, make a plan today to become debt-free and definitely before you leave the workforce. Use techniques such as the debt snowball and debt avalanche to pay down your consumer debt more quickly.⁷ And commit not to tap into the equity in your home, which can delay paying off your mortgage until after you're a retiree.

5. Start Teaching Your Kids Sbout Financial Independence

Finally, one of the single best things you can do to secure your own retirement is to help your kids learn to become financially independent so they aren't reliant on you after you've left work.

Research shows as many as 59% of parents helping out their children financially at the expense of their own retirement.8 It's hard to say no to children who need assistance, so try to set your kids up for financial success from a young age so they won't need your money as they get older.

This can mean starting a college account for your children when they're born and encouraging family and friends to contribute to it instead of giving other gifts. It can also mean helping your kids figure out how to budget and save money so they don't end up in debt. Any steps you can take now to set your kids up to be independent of you by the time you reach retirement age, the better off you -- and your children -- will be.

Take these steps today to help make sure your retirement is secure

There are lots of things you can start doing now to help set yourself up for security as a senior. It's worth the effort to save a little more and make smart lifestyle choices so you can enjoy your golden years with the cash you need to live worry-free.

References

1 5 Things You Can Do Right Now to Make Retirement Easier, Some of them may surprise you

Christy Bieber
March 2, 2019

https://www.fool.com/retirement/2019/03/02/5-things-you-can-do-right-now-to-make-retirement-e.aspx

2 Based on an initial deposit of the 83.33, with monthly deposits of 83.33 and an annual rate of return of 6.5%.

3 Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $400,000, Up From $370,000 in 2017
EBRI Employee Benefit Research Institute # 460
October 8, 2018
https://www.ebri.org/docs/default-source/ebri-issue-brief/ebri_ib_460_medicare-8oct18.pdf?sfvrsn=5c1b3e2f_2

4 26 CFR 601.602 Tax Forms and Instructions.
Internal Revenue Services (IRS)
November 16. 2018

5 Nationwide’s 5th Annual Consumer Survey on Social Security
published in April 2018.
Nationwide Mutual Insurance Company
https://nationwidefinancial.com/media/pdf/NFM-17422AO.pdf

6 Debt of the Elderly and Near Elderly 1192-2016
Craig Copeland
March 5, 2018
https://www.ebri.org/financial-wellbeing/publications/issue-briefs/content/full/debt-of-the-elderly-and-near-elderly-1992-2016

7 How the Debt Snowball Method Works
David Lawrence Ramsey III
Febuary, 8, 2018

https://www.daveramsey.com/blog/how-the-debt-snowball-method-works

8 Parents-Financially-Supporting-Adult-Children
Paul Golden, May 26, 2011
National Endowment for Financial Education
https://www.nefe.org/Press-Room/News/Parents-Financially-Supporting-Adult-Children