Preparing for Retirement: Top Tips for Making Money-Smart Moves

For many in the UK, retirement is an anxious time. On the one hand, you can’t wait until you can stop working. On the other, you’re worried about living on a fixed income. You worry about your pension, your personal savings, your insurance, and what you’ll do about rising healthcare costs.

Here’s what you need to know to make smarter money moves and survive when it’s time to hang up your work shirt forever.

Scoping Out Your State Pension – What You Need To Know

Your state pension is the minimum amount of money you’re entitled to during your retirement. You can claim a state pension when you reach your state pension age. Check out when you’ll reach that age on Gov.UK’s state pension calculator.

You can also consider putting off your claim if you want to stay working longer. This deferral of your pension accumulates your pension benefits until you’re ready to retire.

Buy More Life Insurance

Most people don’t think of buying life insurance as a retirement strategy, but it’s a secret that big banks and hedge funds employ all the time. For the individual retiree, the reasoning stems from a somewhat forgotten approach to financial planning taught by Dr. Solomon Stephen Huebner at the Wharton School of the University of Pennsylvania in America, during the early 1900s.

His concept of Human Life Value stated that an individual should purchase permanent life insurance to fully insure the value of his life – forever – and that human life is the ultimate property, and source of all other properties, which needs infinite protection.

Just as one does not ever reduce the amount of home insurance, auto insurance, or liability insurance over time, regardless of one’s bank account size, one should never reduce the amount of life insurance in force on one’s life.

And, because permanent life insurance includes cash surrender values, it can be used to supplement your pension benefits at retirement.

The cash values in a life insurance policy grow at guaranteed rates, are tax-free, and participating or “with profits” policies pay dividends which may be used to supplement other income sources.

If structured properly (you should talk to a life insurance agent about this), your policy will provide significant protection against stock market losses or corrections, give you options to draw an income during a recession or depression, and the savings component of permanent insurance is accessible for any reason during your lifetime.

Consider a Lump Sum Annuity

When you retire, it’s tempting to take your pension as a lump sum. And, in the UK, you can withdraw up to 25% of your pension pot for this purpose. But, what should you do with it? That depends on your total financial plan.

However, a popular option is to annuitize the lump sum.

Annuitization means that you exchange your savings for guaranteed monthly income. You no longer have access to that savings, but you do have an income you cannot outlive.

Make Smart Cuts

The important thing here is to make cuts in your lifestyle that will not interfere with your long-term goals or activities which you have been planning a lifetime for. Many people get to retirement and suffer from a condition where they are tasked with reducing their lifestyle.

This is something that most people find unappealing for obvious reasons. Because you’re not making an income subject to regular raises anymore, some smart cuts are in order. But, those cuts shouldn’t interfere with your ideal life.

In most cases, this requires a little creativity. If part of your retirement plan was to travel, for example, you could compromise on the size of your home, selling it and rent a flat in a low-cost neighbourhood.

Or, at least buy a smaller home – view more from Wilson Peacock on how to do this.

Then, you could travel in relative freedom with the money from the sale of the house, or at least part of that money.

Another way to save money would be to not travel. If travelling wasn’t part of your retirement dream, then you could work on other ways to cut expenses. You could still downsize your home, but perhaps you could also buy a bicycle and sell your vehicle.

This will help you stay active and reduce transportation costs.

If you can’t ride everyday, you could downsize your vehicle by buying an older model or work out a ride-sharing agreement with a friend of relative. Or, pay for ride-sharing through any of the popular ride-sharing services on the market now.

Joel Rowe works in the personal finance industry within the pensions sector. He has growing concerns on the futures of baby boomers and likes to write on the topic in the hopes of helping people live better lives once they reach retirement.

Downsizing in Style: A Mini-Guide for Restless Retirees

When most people retire, they often think about living on less. In fact, this is the telltale sign that you’re about to leave and retire from work: you transition to a fixed income.

But, how do you do this, exactly? If you’re like most people, you’re scared. You don’t want to live on less, have less, and potentially run out of money. Here’s how to downsize without feeling the pinch.

Make Plans To Travel

You don’t have to sit at home all day. In fact, this is probably not healthy – especially after you retire. You should make plans to get out and travel. Travelling can help you feel like you’re not downsizing at all. In fact, in many ways, you’re not actually downsizing. You’re upsizing your entire life.

Of course, if you spend a lot of time travelling, the one thing you can downsize is your home because you don’t need the space. You can either put things in storage that don’t fit in the new home or flat or you can sell them or give them to family.

But, having yearly travel plans is a great way to expand your horizons and see a world you may never have seen during your working years.

Move To A New Area

Moving to a new area can allow you to keep the same size home without paying the high cost you are right now. Sites, like carsons.co.uk, can help you find a home in a different neighbourhood which may be selling for less money.

You know what they say, right? Location, location, location. Except, this time around, you’re not looking for something with good appreciation potential. You’re looking for something that didn’t appreciate. That could mean living in an economically depressed area, but it could just as well mean living in a slow-growth area that’s not in the slums.

In some cities and towns, you can travel just a few streets down and end up getting the same sized home for £100,000 less.

How To Stick To Essentials Without Making Sacrifices

You’ve probably been told that, when you retire, you need to make sacrifices. What you really need to do is prioritize what you want out of life. Since you can’t afford to have it all, you need to think carefully about what you want and what you don’t want.

Make decisions based on what’s really important to you. So, if you really want to stay in the house you’re in now, what would you have to get rid of? IF the house isn’t as important as other things you own, then you have your answer – sell the home.

Of course, you have to be realistic about things. You can’t have your cake and eat it, too. So, if you’re faced with the dilemma of affording a new car, a home, and all the creature comforts you’re had for years, versus a declining income, you have to really think about what matters most and then get rid of the things that you can’t afford and don’t want (as much).

It can be a difficult decision to make, but it’s necessary. And, at the end of the day, you’ll be happy because you’re not struggling financially to have things that you can’t afford.

Give Furniture To Family First

Don’t forget to ask your children or grandchildren what furniture they might want. You’ve had it for years, but it might be time to give it up. At the same time, you don’t want to just hand it over to a stranger.

Of course, if none of your family wants your furniture, you can put it on consignment and sell it. Just make sure you’re not disinheriting your family first.

Live With Family

A good way to handle this is to use funds for your home and have an annexe, or a granny flat, built as an extension of your son or daughter’s home. That way, you can live independently, and not interfere with the family but you won’t be far away, either.

You’ll have your own rooms, and the extension doesn’t even have to have a shared entrance or an entrance into the other home. The idea is to have a home that is really close to your children’s so that you can call on them when needed and they can help you if necessary. Otherwise, you live alone.

And, the best part is that it will increase the value of your children’s home – something you may not care about for yourself but it will certainly be much appreciated by your children.

Ben Bailey is a financial consultant who has carved out a niche working with baby-boomers. From pensions to downsizing he often writes on these topics for over fifties and personal finance sites.

Net Worth: August 2010

I don’t know if I’ve ever loved Girl Ninja more than I do right now! On last months, Net Worth Update, I predicted my NW would go down by three thousand dollars after some wedding/honeymoon/moving expenses. Fortunately, Girl Ninja, coupled with some Stock Market positivity, actually helped my NW increase! Totally not expected, but I’m a happy camper 🙂

Here’s the breakdown…

Assets:

Checking Account: $4,216, -$1,823. Still keeping the checking above the normal $1,000 balance I generally try and keep, because I leave for Aruba one week from today and want access to quick cash in case Girl Ninja gets kidnapped or something…only kidding…kind of.

Savings Accounts: $13,047, +$0. No change here because I’m keeping my cash in the checking account until after I get back from the honeymoon. I’m keeping my fingers crossed this Dual Income No Kids thing is as cool as I hear. Should provide for some major saving capabilities for the rest of the year.

Roth IRA: $13,851,+$1,114. Still haven’t made my 2010 Roth Contribution, but I’m 75% sure I will before time is up. Just waiting for life to settle down a bit before I part ways with another $5,000.

TSP (401K): $15,069, +$1,603. The standard 5% contribution heads this direction each month. I also get that 5% fully matched. I invest in virtually the same funds in both my Roth IRA and in my 401K so they generally perform the same.

Liabilities:

Student Loan: $0. That’s right. My student loan is still $0 and it will be FOREVER. I’m not quite sure if I’ll ever take this account off my NW updates. It feels too darn good to re-post it each month and it reminds me I Punched Debt In The Face!!!!

Credit Card: $0. I typically show my CC balance for each month, even though I pay it off in full. Right now the balance is $0 because I just sent in a payment. I use my CC for just about every purchase I make. Some months it’s a couple hundred, others a couple thousand.

Even with a $2,500 honeymoon deposit and $800 in home furnishings, my net worth went up +$2,496. There are really only three explanations for this: 1) Girl Ninja started moving her money in to my/our checking account, 2) the stock market went up, 3) I lived within my means. All said and done, this leaves me with a Net Worth of $46,186. Ready or Not $50K…here I come!!!!!

**I chose not to include possessions (including my car) in my NW calculations, which would probably increase my worth by about $8K.**

Meet vulnerable Ninja…

Humility. It’s definitely a quality I lack. In fact, I’m quasi-arrogant. No, I don’t go around telling people how great I think I am. But honestly, sometimes I think that to myself.

This rings especially true in my financial life. I’m always comparing myself to my peers. I don’t like being average. Wait, let me rephrase that. I HATE BEING AVERAGE. While I don’t think the desire to surpass mediocrity is necessarily a bad thing, I do believe it leads to pride. And pride, my friends, leads to arrogance. And arrogance leads to being a douche bag. And last time I checked, I don’t want to be a douche bag. I mean look at this guy and tell me he doesn’t scream “Douche”….

It’s not uncommon for me to measure my financial success by comparison.

It generally looks like this….

Do I make more money than most of my friends? Yup

Do I have a larger savings than most of my friends? Yup

Do I have more in retirement … ? Yup

Do I have less debt … ? Yup

Does that make me better than them? Yup

Wait. No. No, it doesn’t. There is nothing wrong with answering “Yup” to the first four questions, but when I answer “Yup” to the last one, I’m in definite need of a douche-bag-reality-check.

Do I make more money than most of my friends? Sure, but why does that make me better than them? Answer: It doesn’t. Being that I graduated from a small private college, I have quite a few friends that went to work in the non-profit sector. They get paid diddly squat (haha, the word diddly is funny). They may not make as much as I do. And they may not be able to afford some of the “luxuries” I can. But what they lack in income, they more than make up for in life experiences.

Yeah, I make $65,000 per year, but when was the last time I went to Africa in an effort to stop child soldiering like my friend Jed? Oh wait, that’s right. I haven’t. Maybe my income’s not so awesome after all.

Last night, I was reminded I’m not as great as I think I am. I need to stop using my peers as a metric to evaluate my level of success. It doesn’t matter how much THEY make, how much debt THEY have, or how much THEY save. All that truly matters is that I am doing the best I can, with what I got.

Okay I’m going to go rescue a puppy or donate a kidney or something 🙂

Do you ever struggle with pride?

How do you keep yourself humble?

Who inspires you the most (my guess is it’s not your friend that MAKES the most, but your friend that DOES the most)?


Net Worth: May 2010

Can I get a booya for a HUGE leap in my net worth? If the month of April were a person, I would probably want to make babies with it…unless it was a guy, then that would just be weird. Seriously though, I had a great month. I paid down a ton of money on my student loan and am oh-so-close to being debt free.

Here’s the breakdown…

Checking Accounts: $3,160, +$492. Looks like it’s time to transfer some money from my checking account again. April was one of my three paycheck months so my income was rather generous. Why can’t every month be three paychecks?

Savings Account: $14,712, -$8,613. Well I’m a whole heck of a lot more cash poor. I told you I had some tricks up my sleeve in last months net worth report. That trick my friends involved taking $10,000 from my savings to throw it at my student loan. Fortunately, I was able to scrounge up $1,400 to put back in there to make the total only $8,600. I have $10,000 in an E-fund, $2,022 for temporary savings, and $2,681 left in the wedding fund.

Roth IRA: $14,826 +$336. I have fully contributed to my Roth since my senior year of college. I’m hoping to be able to scrounge up the money to do so again this year!

TSP (401K): $14,542, +$947. The standard 5% contribution heads this direction each month. I also get that 5% fully matched. Free money is the second greatest thing in the world. The first greatest thing, of course, is JUSTIN BIEBER.

Student Loan: -$4,287, +$10,208. Do you know how good it feels to have this sucker ALMOST paid off. I am so close I can taste it. If all goes according to plan, I should be debt free by August. Are you excited for me!?

That put’s me at a net worth of $41,789!!! I’m up +$3,895 from last month which may or may not TOTALLY TURN ME ON! Bow chick a bow wow. I don’t suspect having another big month like this for a while. It was a rather large jump for a few reasons. 1) Three Paychecks 2) $360 in blogging income 3) $240 in tutoring income 4) Overall good spending habits. Just goes to show if you spend less than you make, things work out.

Thanks for stalking me checking in on yet another net worth update. See you tomorrow 🙂

**If you have wondered why the blue bar (debt) in the graph sometimes increases, it’s because my credit card balance gets taken in to account each month. Even though I pay the balance in full it still appears as a “liability” in Quicken. I just deduct this from my checking account balance to give myself an accurate net worth reading. This is why my actual NW increase, may not always necessarily match with the totals of each category, but I promise the overall total is REAL. I chose not to include possessions (including my car) in my NW calculations, which would probably increase my worth by about $8K.**