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Saving Strategies for People Between Age 55 and Retirement

By U.S. News & World Report

Retirement may look far away, but those who are closing in on it can tell you that it comes faster than you think. What you do in the last 10 years before you retire can make an enormous difference in how comfortable your retirement years will be.

“From 55 to 65, you’ve got time to really make a difference,” says Mari Adam, a financial planner in Boca Raton, Florida. “If you don’t do that thinking till you’re 65, it’s kind of too late.”

It makes sense to start with an assessment of where you are. If you haven’t saved an amount equal to six to eight times your desired annual income in retirement, Adam says, it’s time to increase your savings. To do that, you may need to consider downsizing now. That could mean moving to a smaller home, taking fewer vacations or going out to dinner less often.

“It’s about choices,” says Linda Lubitz Boone, president of the Lubitz Financial Group in Miami. People who choose to live well now may not be able to live the same way once they retire. “Nobody wants to cut back on the lifestyle expenses. But it’s the thing that they have the most control over.”

The last years before retirement are also an opportunity to maximize savings. If you’re not already contributing the maximum to your 401(k) or alternative plan, that’s the place to start. Other ways to maximize tax-deferred savings are through a traditional individual retirement account, Roth IRA or health savings account. Which combination is best depends on your situation.

Many people think they should transition to more conservative investments as they approach retirement. But being too conservative could mean running out of money.

“You need growth,” Adam says. “You’ve got to be getting some serious growth and income now.”

Failing to generate enough growth could majorly derail your retirement plans.

“You’re 55. You have a lot more than 10 years. You have the rest of your life,” Boone says. “You’re going to fail and run out of money most likely if we invest your money conservatively.”

Here are nine financial steps to take as you come down the final stretch before retirement.

Increase your savings. You want to make the most of the last years of full-time earnings. Start by increasing the amount you put in tax-advantaged investments, including your 401(k), IRA, SEP-IRA, Keogh, 403(b) or other plans. You can make larger contributions to many of these plans once you reach a certain age, and if you can, you should. “You should pay yourself first,” says Adelina Kieffer, senior vice president of The Bryn Mawr Trust Co., in Pennsylvania, who suggests having the funds withdrawn from your paycheck. “It’s never too late to start to do that.”

Be smart about Social Security. While you’re eligible to start drawing Social Security at age 62, that is not the best option for most people. Each year you wait until age 70 adds 7 to 8 percent to your monthly benefit. Couples especially may want to consult a financial advisor because there are numerous ways for married people (or anyone who was married for 10 years) to take Social Security, and choosing the wrong option could mean a loss of $100,000 to $250,000 in lifetime benefits. “It’s a really complicated decision and one that has a significant impact on people’s lives,” Boone says. You can register at the Social Security website and find out what your benefits will be if you draw at 62, your full retirement age (66 or 67) or wait until you are 70.

Get a money checkup. If you’re not sure whether you’re heading in the right direction, visit a fee-only financial advisor for advice. You can find a planner through the Financial Planning Association. “Set the goals, and take a realistic look at what you have,” Kieffer says.

Expect to work longer if you haven’t saved enough. If you can’t live on your Social Security and other income, you likely will have to keep working. “There are not a lot of options for people who have reached 65 and don’t have a lot of savings,” Boone says. “Social Security was never meant to be a sole source of income for people. … People are going to have to keep working longer and longer and longer.” For some people, that could mean starting a business or second career, and for others it may mean getting a part-time job or staying longer in a current job.

Figure out how much you’ll really need when you retire. It’s unlikely that you’re going to spend significantly less in retirement than you do now, unless you move to a cheaper area and slash your housing expenses. And if you plan to travel, you may spend even more. Most advisers say that, as a general rule, you should not spend more than 4 percent of your investment principal annually. Taking that plus your projected Social Security payments and any pensions into account, create a retirement budget and see if it’s realistic.

Get out of debt. You don’t want to go into retirement owing money. Plus, interest you’re paying on loans is money you could be investing for the future. Whether you need to pay off your mortgage before you retire depends on a number of factors, including the payment amount and your expected retirement income.

Keep the bulk of your investments somewhere they can grow. Converting all your assets into certificates of deposit or other assets that won’t increase in value is a recipe for disaster, advisors say. Consider that most recessions rarely last more than 18 months, so you should make 18 months’ expenses the amount to keep liquid, Boone says, with 40 to 60 percent of your investments in stock index funds. “You don’t have a loss until you sell,” Boone says. If the market falls, “all you’re seeing is things go down on paper.”

Be ready to cope with life changes. The best-made plans can be swept aside if one spouse dies or if you lose the high-paying corporate job you expected to keep indefinitely. Divorce can also complicate plans. Expect to need a Plan B or C or even D. “It’s an ongoing process,” Kieffer says of retirement planning. “You have to readjust and replan.”

Update your wills, trusts and beneficiaries. Retirement accounts are distributed to the beneficiaries you name on those accounts. Make sure you keep that information updated. It’s also wise to make sure you have an updated will, a trust, if needed, and health care surrogate documents. These issues are especially important for unmarried couples or couples in second marriages.

More from U.S. News

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10 Ways to Get Help Saving for Retirement

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Saving Strategies for People Between Age 55 and Retirement originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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