4 Ways to Protect Your Nest Egg in Retirement
You’ve worked for 40 years, socking away money diligently to build up your retirement nest egg. You’re confident that your pension, tax-deferred accounts and personal savings are enough to support a stress-free lifestyle in retirement.
When your peak earning years are history, you want to make sure your sources of income are leak-proof. Here are four ways to plug holes in your nest egg and keep it protected:
1) Evaluate Spending: Record daily spending so you’ll know how much spending is too much for you to handle. Take the advice of Alice Wood, author of Wealth Watchers: A Simple Program to Help You Spend Less and Save More.
After joining Weight Watchers, she realized that the plan’s day-to-day calorie-counting approach was an excellent model for managing personal finances. Wood developed Wealth Watchers, a system to determine the amount that can be spent after fixed costs have been addressed.
2) Evaluate Insurance: Take a look at coverage amounts. “Insurance needs often drop as we age,” says Kerry Hannon, a nationally recognized expert on retirement. “A lot of retirees who carry term life insurance because of kids don’t really need it anymore.” More tips: scale down to one car; increase the deductible.
3) Get Out of Debt: “Debts are a real dream killer,” says Hannon, a member of TIAA’s expert panel on Woman2Woman. “I’m a real fan of financial fitness. When you’re debt-free you have so much more opportunity to be nimble.”
Pay off credit cards and destroy credit cards checks, which can have interest rates annualized at more than 200%, says consumer advocate Curtis Arnold, author of How You Can Profit from Credit Cards.
4) Reconsider Housing Needs: “If you’re not bringing in significant income you’d be wise to free yourself of a mortgage,” says Hannon. Advice: Downsize your living situation as quickly as you can.
Selling frees you from other house-related expenses: property taxes, utility bills, homeowner association fees, and other costs of home ownership.
Deciding to get rid of a home can be tough. “Two factors are involved in selling: One is financial; the other is emotional,” says John Waggoner, an investment news columnist. “Some people would rather die than sell the house they’ve been in for 30 years.
“But if you feel like you can make a lot of money now, one of the joys of real estate is the capital gains home-sale tax break,” Waggoner says.
When you sell your primary residence, he explains, you can make up to $250,000 in profit if you’re a single owner—twice that if you’re married—and not owe any capital gains taxes.
While shoring up your retirement nest egg is important, it’s also critical to manage what you’ve got.
That means proactively managing your investment portfolio, understanding how it produces income, and the risks that are involved.
Major mistakes can quickly deplete money meant to cover the golden years.