3 Ways To Boost Retirement Cash Flow, According to Financial Planners
Retirement planning usually focuses on how much savings you have. Of course, the amount going out each month matters just as much as the amount sitting in your retirement accounts.
If you’re approaching retirement or are already retired, a little extra cash can go a long way. Here are three things financial planners say can free up cash fast and make your dollars stretch further.
I'm a Retired Boomer: 5 Money Traps Worth Tempering To Make Retirement Last Decades
Take Action: 6 Clever Ways Retirees Are Earning Up to $1K Per Month From Home
Pay Off High-Interest Debt
Carrying credit card debt into retirement can be expensive, especially if you rely on fixed income alone. "One of the smartest moves people can make before retirement is to pay off high-interest debt, especially credit cards," said Anna Glosser, a financial advisor at Edward Jones. "Every balance you pay off frees up more room in your monthly budget."
Don’t wait until retirement to pay down these balances, however. Make paying off credit card debt a priority in your last working years. Paying more than the minimum and directing any extra income toward high-interest balances can slowly eliminate an expense that would otherwise follow you into retirement.
“This can improve cash flow and help reduce the amount of retirement income you'll need to cover expenses," Glosser said.
Avoid Carrying an Auto Payment
Car payments can also eat into your retirement budget. Financial planner Jacob Bayer, founder of Jacob Bayer Wealth Management, recommended doing everything possible to avoid an auto payment once your last paycheck arrives.
“Vehicle debt is one of the biggest hindrances to a healthy retirement cash flow,” Bayer said. “Many families that have one or two car loans when they retire pay anywhere from $500 to $1,000 each month for a depreciating asset.”
His advice was to stop the cycle of always financing or leasing vehicles and use bonuses or raises to pay off existing ones faster before you retire. Depending on your situation, you might also consider selling a luxury car and buying a cheaper used car.
"The cash freed up during the last working years can go directly to catch-up retirement contributions," Bayer said.
Build Cash Reserves Before You Need Them
Michael Dunlop, CFP and co-founder of Ignite Financial, said the first few years of retirement carry a hidden risk called “sequence of returns risk.”
"The biggest risk is being forced to sell at the time when the market is down," Dunlop said. "If you retire and all of a sudden there's a 20% downturn and you have to pull your living expenses out of stocks when they're at the bottom, that money never comes back to recover, and that's a real danger."
No one can predict market downturns. That’s why Dunlop recommended saving enough to cover two to five years’ worth of living expenses in cash or short-term bonds before you retire. That way, your daily spending isn't tied to the market. When stocks are up, you fill the bucket. When they’re down, you step back and allow your portfolio to recover. The size of the right reserve will vary by retiree.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion:
