The US economy has been through a series of sharp ups and downs in the past four years. It plunged to its rock bottom in 2020 amid the pandemic recession. It recovered in 2021 as restrictions eased, matched with low interest and inflation rates. But in 2022 and 2023, the economy was once again hammered as inflation skyrocketed, exacerbated by weak external factors.
This unexpected turn of events threatens millions of Americans’ finances. High debt levels and savings depletion are some problems that many individuals still face despite the recovering economy.
As such, many employees, especially those in their golden years, are keen on getting multiple jobs to ensure financial stability. Worse, many are choosing to postpone their retirement to cover their needs.
In this article, we will give some helpful advice to protect your finances while waiting for the complete recovery of the economy. We will also guide you in determining the effective ways to get adequate retirement funds this FY.
1. Track Your Cash Flow
As you approach your golden years, you may be desperate to increase your retirement funds. Indeed, the series of unfortunate events in the past four years has taught us a painful lesson. Some would-be retirees are already checking various investment brokers and exchanges to place their funds.
But hold your horses. You don’t want to exhaust your income or savings by putting everything in the capital market. This is the best time to rethink your spending and saving habits. Many people only save what is left of their salaries after spending on necessities and entertainment.
With that, you must make a plan to spend and save wisely. Create spreadsheets every month to track your cash flow. That way, you may determine where you spend most, which area to reduce your spending, and how to increase your savings. Spending strategies like the 50-30-20 allocation help make your monthly expenditures and savings more specific and consistent.
2. Invest a Portion of Your Funds
At this point, you may already have a grip on your monthly cash flow. You may already know how to improve your spending and savings habits to ensure adequate retirement funds.
Even so, you must realize that putting everything into your savings account may not be enough. Your savings generate earnings through interest rates, and their intrinsic value may be eroded by inflation. Inflation may be rising faster than your deposit yields. As such, you should identify several ways to help you cope with inflation.
One effective way is by entering the world of financial markets. Before buying any investment, you must assess your risk appetite, financial capacity, and investment goals. You must also understand how they work and react to market and macroeconomic changes. Suppose you are in your 60s and wish to have passive earnings in your retirement years. You may want to have stable investment sources.
Bonds can be ideal since they are low-risk investments. Rates are always fixed depending on their maturities, and government institutions and large corporations issue them. However, their yields may be lower than expected.
Buying a dividend-paying stock for long-term investments may be ideal if you don’t constantly intend to buy and sell stocks. You can consider buying Dividend Aristocrats since they have already stood the test of time. They have been paying and raising dividends for at least 25 consecutive years. You can also buy REITs since these have higher dividend yields.
Having a balanced fund is good since it allows you to lower risk with higher earnings than investing purely in bonds.
3. Open a High-Yield Retirement Account
High-yield savings accounts do not only refer to bank accounts. You can open a tax-advantaged individual retirement account (IRA) offered by your employer. These will act as your retirement savings and defined benefit plan, which you can enjoy when you reach a certain age. These have higher yields than traditional savings accounts, so getting one early will give you high returns.
There are various types of IRA, including the more popular ones, the 401 (k) and the 403 (b). Once you leave the job and cannot contribute anymore, you can create a 401k IRA rollover to avoid penalties.
4. Consider Getting Annuities or Insurance
Having a savings account is good preparation for your retirement. Establishing an emergency fund is a wise move to protect your savings. However, having annuities and insurance will help you keep your savings and emergency funds untouched most of the time. These could be extra layers of protection for your finances.
We already saw how hospitalizations in 2020 and inflation in 2020 depleted the savings of millions of households in just a snap. The skyrocketing hospitalization costs overwhelmed the savings and emergency funds of many employees.
Meanwhile, inflationary headwinds in 2022 led to high borrowing and credit card dependency levels to make ends meet. It was even more difficult for retirees without constant and adequate sources of funds.
As such, it is important to have insurance and/or annuities to secure funds, especially during emergencies. Annuities and insurance are similar but work in opposite ways. Annuities provide policyholders with constant money for a specific period or as long as they live.
Meanwhile, life insurance releases funds once the policyholders pass away. It can have riders, such as accidental death benefits, permanent disability benefits, and critical illness benefits. Health insurance will provide specific proceeds to policyholders if they get sick or hospitalized. The money provided is per sickness, which is crucial for retirees, given their relatively weaker health.
Lastly, property and casualty (P&C) insurance indemnifies policyholders if a natural calamity or artificial hazard destroys their property.
5. Get Freelance Jobs
Your current income may not suffice for your goals of saving, investing, and multiplying your retirement fund. That is why many individuals must become more resourceful, especially those without generational wealth to depend on when they retire.
If you’re living paycheck to paycheck in your current job, you may consider applying to companies with a better compensation package. Yet, it may take time to get hired, so resorting to an immediate resignation is out of the question.
You can take on part-time or freelance jobs if you have free time. Online jobs are typical nowadays, so you can work anytime and anywhere you want. You can work while commuting to your office or in the comforts of your home. This will give you another source of income, which you can use for savings, insurance, and investments.
Takeaways
Financially preparing for retirement may take time, effort, and self-discipline to sustain. It is still challenging nowadays, as the economy is yet to fully recover. But with your determination and strategies, you can do it slowly but surely. The fruits of your labor will materialize and help you achieve financial freedom in the long run.
