Midlife is that time where we start looking forward to another phase of life: retirement. For some it may be sooner, others later. Either way, there are a few things in mid-life we should ask ourselves about our finances, Midway Through Life asked our favorite CPA/Financial advisor to give us some advice – here are 5 questions to ask yourself:
- At what age do I want to retire? First, come up with your WANT TO number and then you will need to see if you CAN.
TO DO: a. Find out what your Social Security earnings will be when you retire. You can go to the SSA website for the quick calculator: https://www.ssa.gov/oact/quickcalc/ or you can request a statement from the SSA – this will give you an idea of how much you can draw at early retirement (62) or full retirement (currently 66). https://secure.ssa.gov/RIL/SiView.do
b. If you haven’t started to save for retirement – DO IT NOW. Even $25/month in an IRA is something. Start putting something away today for tomorrow. The benefit of a traditional IRA is the tax savings. If a traditional IRA contribution doesn’t save you any taxes this year, make a ROTH IRA contribution or contribute to a separate account you will set aside for retirement only.
c. On top of saving in an IRA or just a regular savings account, start making sure that you have SOMETHING put aside for emergencies. Again, even $500-$1000 can help with a broken appliance, unexpected car maintenance or high-deductible medical issue.
D. Think twice about co-signing for a child’s auto or college loans! Co-signing a loan may be devastating to your financial health, especially as you are planning for the next phase of life. Consumer advocate Clark Howard says:
According to a 2012 report by the Consumer Financial Protection Bureau and Department of Education, about 90% of all private student loans are co-signed by a parent. Sadly, a 2014 Citizens Financial Group survey revealed that 94% of parents with a child in college said they felt more burdened due to their children’s college loans. In addition, around 50% of parents did not have a plan to repay their child’s student loan debt.
When you co-sign a loan, you’re doing more than just giving a character reference for the person. You’re agreeing to pay the debt if they welch on payments — either intentionally or because they lose a job and can’t find another.
So co-signing a loan creates a long-term financial obligation. It is a hazard that should be avoided if at all possible.
http://clark.com/personal-finance-credit/co-signing-a-loan/
2. At what age is your home going to be paid off? For a lot of people this will also determine when you CAN retire. If at all possible, you want to have your house paid off at retirement. This will free up valuable resources that can be put towards living expenses. Paying off your mortgage reduces your monthly cost needs and gives you more choices.
3. What am I going to do for Health Insurance until I reach Medicare age? If you plan on retiring at 62, but are not medicare eligible at 65, what will you do for those 3 years? Will you live without health insurance or buy an individual policy? Going without is not the best option at this time in life, so plan ahead. Sites like https://www.healthcare.gov/retirees/ can help you find a policy to fill that gap. Just know this will take resources (another reason to start saving TODAY)
4. If you are working: How should I deal with all the choices associated with my 401K or retirement plan? You can certainly use the resources that are supplied with your 401K to make the best financial decisions with you 401K for your personal situation. But, if you don’t like making retirement choices or playing day trader with your money, then choose a retirement target date fund. Most accounts have a target date fund that will be more aggressive early and move to more conservative as you get closer to your retirement date.
5. What is your LEGACY? What do you want to happen with your money when you are gone? Do you have kids, grandkids or a cause that you want to see benefit from your money? Do you have a child with special needs who may need care after you are gone? Make sure you have a plan IN WRITING for what you’d like to have happen to your money.
Planning for your retirement and future may seem daunting in midlife, when kids may still be in braces or looking at colleges, but a little planning goes a long way. Gaining Momentum in Midlife is one of the best things you can do for yourself and those you love.