Last week, a reader asked what tips I would have for those already retired. If there are specific economic survival tips for those retired during COVID-19. Yes, there are! In a way, some of the tips mentioned in last week’s post for the unemployed, apply to seniors who are already retired.
For example, retired seniors should implement PERK (Postpone, Eliminate, Reduce, Keep) to make sure their budget is still in good shape. Draw up a list of all expenses, review it, and seriously consider which monthly expenses you should Postpone, Eliminate, Keep, or Reduce. Being in retirement does not mean that financial goals have disappeared, but when and how you pay for them may have changed.
Your budget may have changed in retirement. Often times, retirees go into retirement the first year or two and have a strict budget (due to fear of outliving their money). Over time, they may feel the need to focus less on their budget, and start spending more. This spending creep can lead to higher credit card balances and tapped out credit lines. If this is you, a full-on budget review is necessary and you should start at ground zero. List all fixed monthly expenses that are not going away, next look at the flexible expenses. This can be done in conjunction with the PERK review.
Time to become more tech savvy. Take advantage of as much safe online activity as possible. If you are not already doing so, get familiar with how to do your banking, bill pay, credit card management, and even shopping online from the safety of your own home. Set up two-factor authentication for accessing your online accounts and set alerts on your accounts that will come directly to you by text or email. This does take some tech savviness to learn to avoid phishing scams and other fraud but it’s well worth it. Never click a link you don’t know! Check out this resource for seniors, Money Smart for Older Adults Resource Guide at ConsumerFinance.Gov for tips on avoiding scams and identity theft. This is where a younger, trusted family member can be a big help, or better yet, a fiduciary adviser.
Don’t pass on those senior discounts and extra assistance. Be sure to find out what you may be eligible for from local senior agencies and others like 211.org and AARP and even the local food bank if needed. Don’t be shy! All of these discounts add up and you have earned them.
Look for assets you own that can pay you. For example, do you have a second or third car, a boat, motorcycle, piece of art, or an RV that you are not using. Consider selling those items before they depreciate. If you are not ready to sell, you may be able to put an item, such as an RV, into a rental program to earn some extra cash.
What about a second home? If you have one and are still attached to it but not quite ready to sell it, explore prepping it for short-term rental. Your home will need to be in an area that has vacation rental demand. Keep in mind, you don’t need to be right on the beach to earn some extra income. Ask others that have second homes near yours if they are renting and if the demand is strong. You may be surprised, but smaller towns and remote areas are hot again due to COVID-19.
Monetize your knowledge. Take all that accumulated knowledge you have and marry it to your new tech savviness. You could consult or teach an online course, or even setup and create your own online course via platforms such as YouTube, Instagram, Facebook Live, and others. All you need is some creative content and access to the world (your Internet connection). Pay services are much easier these days as well. You won’t be dealing with folks sending you paper checks because of pay services such as Venmo. Not sure where or how to start? Just Google “how to offer an online course” or go to YouTube and search the same. You’ll get tons of ideas! Take a free online course yourself through Coursera, or Udemy, to learn more.
Review your total portfolio. Make sure you are at a comfortable mix of equities versus fixed-income and still have emergency fund cash on hand. Ideally, you should be in diversified funds with low cost expense ratios. You also want to look at how you are paying yourself from your portfolio and from what type of account (taxable, tax deferred, or tax free). Personally, I am a fan of paying yourself monthly versus taking a large annual payment. You used dollar-cost averaging to save for retirement, taking advantage of the market and its general march higher, why wouldn’t you employ this strategy for paying yourself in retirement? For example, if you have a $1,000,000 portfolio and you are going to follow the much touted 4% rule, you need a withdrawal of $40,000. Do you take it all in one go, or monthly? I vote monthly. That way, you are not market timing, nor are you missing out on monthly gains as the markets continue their growth over time. This can also be helpful during times of volatility as well. Taking roughly $3,333.33 out of your portfolio in a so-called down month hurts less than pulling out $40,000 all in one go if that’s your chosen month. And, if you are with a high-cost broker, consider leaving for greener (read more affordable) pastures! Those transaction fees can really add up.
The preceding paragraph is, admittedly, a very simplistic overview. I cannot be more detailed because your mix of account types (taxable, tax deferred, and tax free) is an important consideration. That hypothetical annual withdrawal needs to be considered in the context of your required minimum distribution (RMD) if you have one, your tax situation, and with other accounts. If you are lucky enough and planned well enough ahead, you should have all three account types to draw from. This topic alone merits a lengthy post!
Finally, be absolutely certain you have an estate plan in place. Everyone should have at minimum, a healthcare directive, powers of attorney (medical and financial), a will and/or a living will, and a final letter of instruction. Do not, ever, assume that your descendants understand and know your wishes. Put it in writing! Don’t leave it up to a casual Sunday dinner conversation over chicken. If you are a home owner, especially in California, you should consider a revocable trust. A trust avoids probate, a will does not. Probate is very public and very expensive.
As an independent Certified Financial Planner™, I can help you work through these issues. Contact me and let’s get started! #talktometuesday #refund #Hireaplanner #bonus #income #cash #CFPPro #foundmoney #stimulus #pandemic #COVID-19 #Coronavirus #Employment #Unemployment #PartialEmployment #seniormoment #retired