Retirement is supposed to be the point when working becomes optional. But even with years of planning, higher everyday expenses, unexpected bills, health care costs, or simply living longer than expected can put more pressure on retirement savings than you think.
While there’s no way to guarantee you’ll never need another paycheck, there are steps you can take to make your finances more resilient. These seven financial moves can help your retirement income go further and reduce the chances that you’ll have to return to work because your savings aren’t keeping up.
Create a Retirement Budget Before You Actually Retire
Don’t wait until the first retirement check arrives to find out whether your expected income covers your lifestyle.
Try living on your projected retirement budget beforehand, including housing, food, transportation, insurance, taxes, health care, travel, entertainment, and irregular expenses, to identify potential shortfalls while you still have employment income.
Plan for Health Care Costs
Medicare eligibility doesn’t mean every health-related expense suddenly disappears, and health care can become a significant part of a retirement budget.
Premiums, deductibles, copays, prescriptions, dental and vision care, and possible long-term care expenses deserve their own place in the plan, not an afterthought.
Pay Down High-Interest Debt Before Retirement
Carrying credit card balances into retirement means using part of a potentially fixed income to pay interest on purchases you made months or even years earlier.
Prioritizing high-interest debt before leaving the workforce can reduce your required monthly expenses and allow more of your retirement income to pay for what you actually need.
Related: 15 Everyday Habits That Could Quietly Lead You Into Debt
Take Full Advantage of Retirement Contributions While You’re Working
The years immediately before retirement can be especially valuable for building savings, particularly if you’re eligible to make catch-up contributions to certain retirement accounts. If your employer offers a matching contribution, contributing enough to receive the full match can also keep you from leaving part of your compensation on the table.
Build a Bigger Emergency Fund Before You Retire
An emergency fund becomes particularly important once regular paychecks stop because unexpected expenses don’t disappear when you retire. Keeping an appropriate cash reserve for things like home repairs, insurance deductibles, and car trouble can reduce the chances that you’ll have to sell investments or take on expensive debt to cover an emergency.
Don’t Automatically Carry a Mortgage Into Retirement
A mortgage can consume a significant portion of monthly retirement income, so it’s worth considering what role yours will play before you stop working. Paying it down faster isn’t automatically the best decision for everyone, but comparing the financial trade-offs of entering retirement with or without a mortgage can help you understand how much income you’ll actually need each month.
Keep Your Retirement Investments Diversified
Depending too heavily on one company, industry, asset class, or investment can expose retirement savings to unnecessary concentration risk.
A diversified portfolio appropriate for your goals, timeline, and risk tolerance can help spread that risk, although diversification can’t prevent losses.
