As you get older, you’ll likely face a different financial situation than in your younger years. You have to manage your money carefully to ensure you don’t outlive your savings once you stop working. Financial mistakes are harder to recover from because you don’t have decades of work ahead of you to make more money. Becoming more financially literate is crucial so you have the knowledge and skills to effectively handle your finances and remain independent. In our last post, we discussed the unique financial risks of aging. To account for these risks, you want to improve your financial literacy in these areas:
Day-to-Day Control Over Your Finances
It’s critical to know how to manage your daily financial affairs as you prepare for and move into retirement, so you live within your means. Long before you quit your job, you should calculate how much income you will need to support yourself in retirement and how long your money is likely to last. That will tell you when you can afford to retire fully and what adjustments you should start making now to put yourself in a better position.
Educate yourself on budgeting; tracking income, expenses, and savings; and adjusting as needed to maintain your financial health. Once you retire, your risk of running out of money increases because you no longer have work income. Keeping track of your money will help minimize the danger of outliving your savings.
You can take advantage of online banking, budgeting apps, and financial planning software to make it easier for you to monitor your finances, pay bills, and manage investments.
Retirement Planning
To plan appropriately for retirement, you must estimate your future financial needs and costs and understand different retirement savings options and how to maximize them. You will have to make informed decisions about when to retire, when to take Social Security benefits, how to withdraw savings to minimize taxes, and how to adjust spending based on unexpected changes to your finances. Understanding how to invest is also key.
Your financial projections and investment strategies should take into account inflation, taxes, healthcare costs (including long-term care), and other expenses that impact your savings.
A financial planner and CPA can help you develop a customized financial plan that balances the need to grow your money, have sufficient income, minimize taxes, and achieve other goals (ex. leaving a legacy). However, even if you have a financial planner, learning the basics is beneficial.
Financial Safeguards
Financial scams and financial abuse of older adults are common. To reduce the risks, you should take steps such as:
- Learning about different types of scams from websites like AARP, the FTC, the Department of Justice, and the IRS.
- Monitoring financial accounts regularly.
- Verifying whether financial and personal information requests are legitimate.
- Following good cybersecurity practices like virus protection and dual-factor authentication.
You should also protect your finances from your own cognitive decline. Studies show that many people lose significant funds because of undiagnosed cognitive impairment. They may overspend, neglect to pay bills, make poor financial decisions, and fall prey to scammers.
Have trusted individuals that you can rely on to help you manage your finances. Vet and hire professionals who can provide financial oversight. Designate a power of attorney to manage your affairs if you cannot do so. Finally, talk with your family about your wishes and listen to their concerns.
Healthcare and Insurance
Educating yourself on Medicare and other insurance plans can help ensure you choose the best and most affordable coverage based on your health needs and financial situation.
You should monitor healthcare costs so you can better budget every year for co-pays, prescriptions, and other health-related costs.
Planning for long-term care expenses is also essential. Many costs aren’t covered by Medicare and can quickly escalate. Long-term care insurance and/or Medicaid planning may be helpful and should be investigated. The earlier you plan, the more options you have to set aside money to pay for long-term care.
Estate and Disability Planning
A comprehensive estate plan that includes a will, power of attorney, health care proxy, living will, and other legal documents helps ensure that your wishes are followed and your assets are protected in the event of incapacity or death. An attorney can also assist with Medicaid planning, trusts, and asset transfers.
You should speak with your family about your plans to avoid conflicts later. Family members should know your healthcare and financial wishes as well as your resources to pay for your care. If you are planning on relying on them to assist you, this should be discussed well in advance.
Getting Help
Improving your financial literacy empowers you to make well-informed decisions, but trying to handle it all yourself may not be the best. Financial and legal professionals can provide customized advice and support on how to manage your day-to-day finances, develop a comprehensive financial plan, and execute necessary legal documents to protect you and your family.
Even if you or your loved one is financially literate, having such advisors can help you be more independent and secure in your decisions.
As a daily money manager (DMM), I can help you or a loved one with tasks that you don’t have the time or inclination to handle like:
- Paying bills and tracking income, expenses, and cash flow.
- Organizing financial documents and records for tax purposes.
- Monitoring for suspicious transactions or unusual spending.
- Helping with budgeting and financial decision-making.
- Dealing with insurance claims.
If your loved one is struggling but doesn’t want to let go of control over their finances, I can facilitate a discussion to find a solution that allows your loved one to manage what tasks they can handle but provides oversight to protect their finances. I can provide an extra layer of security and peace of mind.
If you or a loved one could use support with managing day-to-day finances, contact me for a free consultation.
