Five Financial Resolutions For Seniors
January 7, 2019
Have you made your 2019 resolutions? Only about 40% of people make New Year’s resolutions. Fewer than half stick with their goals at least half the year. That happens when people make broad, unrealistic promises to themselves with no real plans. These include vague resolutions like lose weight, save more, get healthy, etc.
In contrast, these five financial resolutions for seniors are specific, manageable, and very important to financial stability in retirement.
Resolution #1: Track Your Spending
Get control of your finances in just a few minutes each day! You simply can’t get a handle on your financial situation until you know where you’re money is going. This is important at any age, but particularly for people near retirement age or already retired.
Tracking spending is the first step towards developing a budget. The simplest way is to write every transaction in a notebook, but it’s difficult analyze a long list of transactions that aren’t categorized. Instead, try one of these methods:
• Paper accounting ledger: If you don’t access to a computer or aren’t comfortable with spreadsheets, try a using a paper ledger book. It’s an inexpensive beginner method that allows you to separate expenses into different categories.
• Spreadsheet tracking: Using a spreadsheet to track expenses is a lot like using a paper ledger, but with fewer math mistakes and the ability to create charts and graphs. You don’t even have to set up your own. There are a number of free spreadsheet templates for spending tracking and budgeting.
• Expense tracking apps: People who already spend a lot of time on their smartphone should consider a spending and budgeting app. One of the most popular is a free app called Mint. It allows users to link bank accounts, credit cards, investment accounts, and more. The app automatically categorizes transactions and even offers recommendations on how to manage your finances better.
Spending and expense tracking is the most important step you can take to get control of your finances.
Resolution #2: Review Investment Allocations
During the end of 2018, investors watched nervously as the Federal Reserve Board raised interest rates slightly and the stock market swung as wildly as one of those pirate ship rides at an amusement park. People at or near retirement age are particularly affected. They have a lot less risk tolerance and face mandatory distribution rules. At age 70 1/2, retirees must begin taking required minimum distributions (RMDs) from their tax-free retirement accounts. If your retirement accounts are heavily invested in stocks, you could be forced to sell depressed shares to satisfy RMD obligations.
Talk with your investment advisor about the right investment mix for you in the coming year. It may make sense to move some assets into liquid accounts like cash or money market funds.
Resolution #3: Plan for Health Care Expenses
According to Fidelity Investments, a couple who retired in 2018 can expect to spend about $280,000 out of pocket on health care during the rest of their lives. Given that the average retirement savings of individuals in their fifties is $117,000, that $280k is a scary prospect!
The vast majority of seniors want to age in place in their own homes or live independently in a retirement community. That is the most cost-effective way to live in retirement – and the most comfortable. Your best bet is to plan for the worst and work for the best outcome by staying as safe and healthy as possible.
• Ask about non-skilled home care: As of 2019, some Medicare Advantage plans cover non-skilled care to help you with household tasks like cooking, cleaning, and shopping. This can help you stay healthier with good nutrition and regular outside contact.
• Keep a companion animal: Seniors with pets get more exercise and experience less depression and loneliness. But be careful about falls caused by pets!
• Install a home medical life alert system: In case of a fall or medical emergency, prompt emergency response is critical. Bay Alarm Medical’s home medical alert system with fall detection will summon help even if you can’t. We even offer an in-car medical alert system that keeps you protected when you drive (or even if you’re a passenger in someone else’s car).
• Investigate Long Term Care (LTC) insurance: The best time to purchase a policy is, of course, before you need it! The American Association of LTC Insurance recommends purchasing a policy in your 50s. If you wait later, after developing certain health conditions, you may not qualify for a policy, and the average annual cost of a semi-private room in a nursing home is $77,000.
Resolution #4: Pay Down Debt
A 2018 survey of retiree households found that 40% of retirees say that “paying down debt” is a priority, and that 45% are still paying off non-mortgage debts including credit card debt, student loans, car loans and medical debts. Two-thirds of people expect Social Security benefits to be their main source of retirement income.
Households living on fixed incomes with limited retirement savings can be extremely vulnerable to financial shocks. Financial planners often counsel clients to pay off as much debt as possible before retirement, but many people are forced into early retirement due to job losses or health issues.
Your expense tracking documentation should help you create a debt repayment plan. Always start with the high-interest, non-deductible debts first – generally credit card and or car loans. Then consider repayment strategies:
• Ask for lower rates: Credit card companies will often work with long-term, good customers and offer a lower rate to keep the customer’s business. This works best if you have a long-term relationship and good payment history. While you’re on the subject of lowering your costs, check out our article on senior citizen discounts for more ideas.
• Apply for a balance transfer card: Many card issuers offer low promotional rates for balance transfers. Some are as low as 0% for a year or more. The savings can be substantial. For example, if you consolidate $10,000 in card debt from a 20% annual percentage rate (APR) to a card with 0% APR, you could save approximately $2,000 in interest charges in a year. Remember though: you have to pay off the balance within the promo period, and if you miss payments, the company will often cancel the promotional rate.
• Consider a personal loan: Interest rates on unsecured personal loans are higher than secured loans, but lower than the average credit card rate of 16%. Credit unions often offer personal loans, and there are online companies as well. Be careful: these loans lock you into a monthly payment amount, so make sure you can maintain it. Look for a loan with no repayment penalties and low origination fees.
Resolution #5: Protect Your Credit
No matter how careful you are with finances, there will be unexpected expenses from medical bills, uninsured losses from natural disasters, or other emergencies. Some debt may be unavoidable, so make sure you can borrow if you need to. Borrowers with better credit histories receive better loan and credit card terms. In addition, many states insurers use credit history data to set your auto and homeowner’s insurance rates.
Paying down debt helps improve your score, but there’s more you can do to protect your credit:
• Enroll in automatic payments: A single late payment can lower your credit score and cost you money in late fees. Most credit card issuers and lenders let you set up automatic payments, so you don’t forget or worry about the check being lost in the mail.
• Review your credit reports: Credit reporting bureaus are required by law to provide you with one free credit report annually. Look for errors that can affect your credit score. In 2012, the Federal Trade Commission found that as many as 20% of credit reports contain errors that negatively affect scores!
• Subscribe to a credit monitoring service: There are many paid credit monitoring services available (always look for promotional offers and coupon codes). Also, look at free services that give subscribers access to their credit reports and send alerts when someone requests your credit report or opens an account in your name. This Nerd Wallet article has tips to help you choose a credit monitoring service.
• Freeze your credit: If you suspect that your personal information has been compromised, immediately contact the three credit reporting bureaus to request a credit freeze. While your credit is frozen, nobody can open new accounts in your name without contacting the credit bureau and providing the PIN/password for your account.
Financial stress, like any kind of stress, affects mental and physical health. A 2015 report by the American Psychological Association founds that 72% of adults reported being stressed about money in the previous month. Don’t be one of them!
These five resolutions will help seniors manage their finances with less worry and financial strain. Make 2019 the year you become healthier, both physically and financially.
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