Senior financial planning involves learning how to maintain a certain lifestyle and medical expenses on a fixed income. Just like any other stage in life, managing money and keeping organized and informed is key to your success. Luckily, we have a list of financial tips, strategies, common mistakes, and investment options that will inform you on how to best manage your finances as you age or entire retirement.

Basic Financial Advice for the Elderly

Let’s start with some basic advice for improving and budgeting health, medical costs, debt, and more.

  1. Determine whether you need to consult an expert

ask the expert

Begin by doing some research on professionals who can help you organize your finances. If you feel like you need professional help, look into financial assistance by doing some internet searches. Look at title and credentials before choosing someone to work with.

The Financial Industry Authority has a website where you can learn more about choosing an investment or financial advisor.

  1. Consider designating a power of attorney

power of attorney

First, consider writing down instructions for handling your money and accounts. Let a loved one know where it is kept in case of an emergency. If you want to legitimize the person who you would like to take care of your money upon death or injury, an attorney can help you establish a power of attorney.

A power of attorney is just a fancy title for the person who you designate to make key decisions regarding your finances. According to a study in the Journal of Pension Benefits, establishing a power of attorney is an inexpensive process and come in two forms.

  • 2 types of POAs:

    • Durable - A designated individual monitors your finances as soon as you sign and remains in control if you become incapacitated.

    • Springing - A designated individual can only monitor your finances when you are declared incapacitated.

Keep in mind that laws vary from state to state, so these definitions for the different power of attorneys might vary. Furthermore, if you are not comfortable designating a power of attorney, you can add a co-owner to your accounts. The only downfall is that they will have the ability to withdraw money or make transactions without your approval. Essentially, adding a co-owner to your accounts mean giving someone access to your money.

  1. Create a financial plan to regulate spending during retirement

financial planning

There are several ways you can adjust and cut back on your spending during your retirement. For example, let your insurance provider know if you are not driving your vehicle anymore or if you are no longer driving your car to work. 

Also, continue to save money for short-term goals like a weekend get-away, Christmas gifts, or birthday presents. This will keep you from feeling overwhelmed in the long-run.

If you’re looking for a more concrete plan try using our step-by-step “How to create your best budget”:

  • What you’ll need:

    • Bank account statements from the last 6-12 months

    • Credit card statements from the last 6-12 months

    • Last year’s tax return

    • A few pay stubs from both you and your partner, if you are married

  • Step 1: Fixed Expenses

Begin you budgeting plan by making a list of all fixed expenses which includes recurring monthly bill including essentials, non-essentials, and required non-monthly expenses.

    • Essentials: Food, housing, and utilities, clothing, transportation

    • Non-essentials: Cable, gym memberships, subscriptions like Netflix or Spotify

    • Required non-monthly: Property taxes, insurance premiums, auto registration

  • Step 2: Accounting for Healthcare

    • Before you turn 65 and qualify for Medicare, you might experience expensive premiums up to $1,000 a month per person.

    • Therefore, including dental, eye care, and hearing to your budget will help you prioritize your health. It will also give you a realistic expectation of how much healthcare will cost you each month or until you turn 65 years old.

    • You can add up all of these expenses and then divide by 12 to estimate how much money you will need each month to live.

  • Step 3: Treat yourself

    • Don’t forget to add room for optional items that provide you with a well-balanced life like travel, hobbies, sports, and the occasional dinner and a movie night.

  • Step 4: Calculate total expenses

    • Total all of your expenses by the three categories we listed above. Based on these totals, you’ll be able to determine if you have extra money left over to occasionally treat yourself.

    • If you aren’t able to have as much fun in your retirement as you had hoped, consider ways to lower fixed expenses first. Then, evaluate your non-essential monthly expenses to see if any cuts can be made there.

  1. Monitor your credit

credit report

Mistakes and theft identity can easily occur on your credit report. Errors may damage your credit score or make it difficult to borrow money. Be proactive and order a free credit report every six months. This website pulls credit scores from three main credit bureaus to ensure even more accuracy.

  1. Be cautious when opening credit cards

credit card caution

If you need to borrow money quickly, go to your bank or do some research online about other loan opportunities based on the annual percentage rate before pulling from your retirement funds. Many credit card offers costly interest rates and other fees.

  1. Turn your favorite hobbies into a source of income

what are your hobbies

Supplement your income with a part-time job like freelance consulting, or a seasonal position, but before committing to employment, consider how it will affect your income taxes.

  1. Understand the benefits and risk of an annuity

risk vs benefits

An annuity is a fixed sum of money that is paid to someone every year or a form of insurance that provides the investor with annual sums of money. You can buy an annuity from an insurance company by making a single payment or multiple payments. In essence, you are buying a stream of income. Afterward, you will receive payments from the company either in one lump-sum or a series of payments for a specific amount of time.

In Control Your Retirement Destiny, author Dana Anspach, an expert on retirement decisions, provides key tips on potentially buying an annuity. She claims that “you can buy life annuities that also have a death benefit feature” which you should consider for two primary reasons: “it protects against longevity risk (outliving your income) and overspending risk.”

Learn as much as you can before investing because there might be some hidden cons that are subtlety left out of the conversation. The U.S. Securities and Exchange Commission’s website is a good place to learn more about potential benefits and risks.

  1. Get organized so that paying bills is easy

organized paying bills

Do you have multiple accounts or credit cards that you’re not using? You might want to consider consolidating accounts or eliminating extra credit cards so that you can be more organized. You will also have less to worry about when it comes time to make payments. In this case, extra credit cards might be accounts to retail companies.

  1. Save time and money simultaneously

save time and money

Consider enrolling in automated bill pay online so that you don’t have to worry about remembering to make a payment. This way you’ll avoid late charges or service interruptions.

You’ll also help reduce paper bills that would otherwise be mailed to your place of residence. Your bank might even offer incentives if you receive your statement electronically. Regardless, continue to review your statement to check for inaccuracies or fraud even though you might no longer receive a hard copy.

  1. Be aware of overdraft coverage

pressing overdraft on keyboard

Overdraft protection is something that you might opt in to in order to protect your account from fees in the event that you make a debit purchase and don’t have enough funds in your account to cover the transaction. Contrary to what you might think, studies have found that those who “opted in” for overdraft coverage ended up paying more costly fees than those who did not agree to the coverage. Those who opted in were also more likely to have their account closed.

Ask your bank to link your savings account to your checking account rather than enrolling in overdraft protection. If you don’t have enough money in your account and you use your debit card during a transaction, you won’t incur any costly overdraft fees because your savings account will be there to save you.

Financial Strategies for the Elderly

  1. Look for discounts and deals that are senior-friendly

senior dicsounts

Some financial institutions offer breaks for people over a certain age including the cost of bank services or products. You also might be able to get a better deal than what is being advertised by talking about the other offers you have encountered. If financial institutions are made more aware of their competitors, they are more likely to work with you.

There are also other senior-friendly discounts you can take advantage of. Click here for a comprehensive list of discounts at various grocery and retail stores, and restaurants.

  1. Avoid accepting an offer to advance you a portion of your future pension, Social Security, or other retirement income

woman rejecting

It is quite common for seniors to accumulate credit card debt. To avoid this, try to limit your credit card transactions or pay in cash. You can also set a goal to pay off your credit cards in full each month to avoid interest charges.

  1. A reverse mortgage isn’t always worth it

reverse mortgage

If you are 62 or older, you gain the opportunity to use a reverse mortgage which means you won’t have to make monthly payments as long as you meet the terms of the loan agreement. Unfortunately, reverse mortgages typically incur a large amount of interest that you must eventually repay.

Experts recommend that both you and your partner sign the reverse mortgage in case of an emergency or death. If you have both signed the mortgage, then the surviving individual can continue to live in the home.

Financial Mistakes Retirees Usually Make (and How to Avoid Them)

1. Lacking a tax-efficient strategy

tax

You will not experience the same tax amount for all retirement accounts. To counteract this, experts recommend that you withdraw strategic amounts from each account so that you avoid paying more in taxes than necessary.

What to do:

Consult a financial advisor or tax advisor and look at various tax brackets to determine how much money you need to withdraw.

2. Supporting your adult children

mom and dad giving check t daughter

Even though no parent wants to see their children struggle, many retirees do not have the financial capacity to support themselves and their children. The main issue here is that retirees are unable to replace their money whereas their children can.

What to do:

Have a conversation with your children. Explain to them that your financial situation makes it difficult to support yourself let alone others.

3. Not being prepared to live on your new retirement income

unprepared

Healthcare is one of the main reasons why many seniors struggle to live on their fixed retirement incomes. According to PwC’s Health Research Institute (HRI), medical costs continue to rise and remain unsustainable and out-of-reach for retirees. 

For 2019, PwC says that medical care costs to stay on trend and increase by another 6 percent. Other retiree concerns like assisted living is an important factor to consider. Professional or assisted living ranges from $2,000-$6,000 a month depending on where you live.

What to do:

Consider these increasing medical cost trends so that you can work with a financial advisor to plan ahead for rising healthcare costs.

4. Spending too much early in retirement

money on the sink

So you didn't have a budget in place or began spending too much early in your retirement. This is actually pretty common because now you have loads of free time and can dive into your hobbies or start new projects that you never had time for. 

Unfortunately, overspending during retirement is incredibly dangerous because you're not just losing money. You're missing out on potential returns and grow in years to come. The last thing you want to do is outlive your money.

What to do:

Contact a professional to help budget your money better. Think about how you can stretch your pension, retirement accounts, or Social Security. This way you'll have a better idea of how much money you have for your hobbies and projects.

5. Failing to collaborate with your partner

couple arguing

Like spending retirement savings too early, failing to collaborate with your partner is another common issue that occurs during retirement. Being on the same page as your partner will help you achieve a more balanced lifestyle/ This way, you can enjoy your retirement together.

What to do:

Make sure that both you and your spouse agree on your retirement finances. It's important that you both have a general understanding of your financial situation so that nobody is blindsided. Also, consider finding a mediator like a financial professional if you are unable to come to a conclusion. A third-party will give you factual information and help guide the conversation so that you are able to make an informed decision together.

Investment Options for Retirees

investment options

The importance of having investment options is often misunderstood or overlooked. Below, we have a list of investment options that will help guide you in choosing the best option for your financial situation. These options include real estate investment trusts, dividend-paying stocks, peer-to-peer lending, municipal bonds, annuities, U.S. Treasury notes and bonds, and treasury inflation-protected securities.

Real estate investment trusts (REIT)

real estate investment trust

How it works: This type of investment is provided by companies that own, operate or finance profitable real estate. Some of the properties include apartment complexes, hospitals, office buildings, hotels, and warehouses. Individual investors have the opportunity to purchase ownership in real estate and then receive income from the properties.

Dividend-paying stocks

stocks yield

How it works: Dividend-paying is simple. For every share of a dividend stock you own, you’ll receive a portion of the company’s earnings. Owning stock can be risky, but it’s an easy way to make money without putting in extra work.

Peer-to-peer lending

giving money

How it works: In peer-to-peer lending investors lend money to individuals who agree upon an individual interest rate. This way of borrowing or lending money does not require an official financial institution.

Municipal bonds

municipal bonds

How it works: Local and state governments issue municipal bonds by raising money for public works projects like the construction or maintenance of bridges and schools. The municipality sells the bond to an investor in exchange for regularly scheduled interest payments. 

Municipal bonds are particularly safe long-term investments because if you live in the issuing municipality, they are exempt from federal, state, and local income taxes.

Annuities

annuities

How it works: Annuities are great for retirees whether you are hoping to supplement your income or add to retirement savings. Simply put, an annuity is a fixed sum of money that you receive each year. It usually comes in the form of insurance or investments, and typically for the remainder of your life.

Treasury inflation-protected securities (TIPS)

dollar with inflation graph

How it works: According to an article in The Journal of Retirement, the U.S. Treasury created Treasury inflation-protected securities (TIPS) when an influx of middle-class retirees with little retirement savings, no pensions, or unstable retirement incomes. TIPS provide retirees with a safe way to attain a steady and inflation-adjusted retirement income.

The U.S. Treasury issues TIPS in the terms of 5, 10, and 30 years. Similar to municipal bonds, TIPS interest income in growth is exempt from state and local income taxes but subject to federal income tax. Furthermore, you can hold this investment until maturity or sell it before maturity at 45 days minimum.

Conclusion

Senior financial planning is generally overwhelming and nerve-wracking. With these financial planning tips, you'll glide straight through to a bright and enjoyable future.

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