The Critical Money Considerations You Should Make in Your 60s

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The average retirement age in the United States is 63, according to U.S. Census Bureau data. If you are part of that trend, get ready to have your financial world turned upside down in your 60s.

As you trade in your office keys and a steady paycheck for a pension (if you’re lucky), investment income and Social Security, you shift from an accumulation phase to a distribution phase. Once you do, many of the engrained investment lessons you learned no longer apply. While the most important retirement-based IRS rules come into play during your 50s and 70s, in your 60s you must learn about (and try to understand) government programs, such as Social Security and Medicare.

As you shift from accumulation to distribution, volatility becomes trouble. While market turmoil is tough to stomach whether you’re in your working years or retired, those wild swings can actually be beneficial for employees. If you participate in an employer-based retirement plan, you have a forced discipline to buy securities even when the market is down. You are practicing dollar-cost averaging, which, over long periods of time, can help you buy at a lower cost per share. The day you turn on that “income” switch, that volatility exposes you to sequence-of-return risk. In other words, the average return of your investments is not the only factor anymore. When you are living off your investments, the timing of returns is also critical. The earlier in retirement you take a big hit, the worse off you’ll be.

Financing Life After Retirement 

Now that we know we want to reduce volatility as well as sequence-of-return risk, we must think about solutions. Not to sound like a broken record, but the first step is to diversify. Imagine retiring in 2000 with large tech holdings or 2008 with large amounts of real estate. To spread the risk, cut your pie into many pieces.

Once you have a diversified, retirement-appropriate portfolio, you must decide which pieces and how much to sell in order to make your money last. Here are two out-of-date strategies that I wouldn’t fully depend on.

1. Living Off Dividends

Living completely off your dividends is probably unrealistic and irresponsible, unless you are very wealthy. In today’s low-yield environment, you are likely to get a dividend around 2%. If you’re invested 100% in stocks (also irresponsible for many), that means you’ll need a $5 million portfolio to draw $100,000 a year before taxes are taken out. The other risk is that if you are properly diversified, you are drawing only from the stock side, which means the bonds will become too heavily weighted. A better strategy is to sell by rebalancing. Every year decide how much money you will need and sell from the portion of the portfolio that has gone up. This will bring your portfolio back into balance and help you avoid selling at a loss.

2. Using the 4% Rule of Thumb

The 4% rule — often used to determine how much money you withdraw from a retirement account each year — was created for much less healthy people in a much healthier market. The amount you can safely pull out of your portfolio depends on the return you are earning and your life expectancy, which should make you skeptical of any one-size-fits-all strategy.

When to Take Government Retirement Benefits

Now that we have handled the complexities of investing as a retiree, we can dip a toe into the murky, complex waters of government programs. Regardless of your birth year, you can claim Social Security retirement benefits early at age 62. However, you will be permanently penalized for doing so. If your full retirement age is 66 (if you were born in 1943-1954), you will receive 25% less in benefits every month if you claim at 62. The opposite is true if you wait. You will get delayed retirement credits (income increases) of 8% per year until age 70.

The first step to figuring out Social Security is to learn the language (PIA, AIME, DRC, FICA, etc.). Next, find an advocate. Whether they’re a financial planner or not, you need someone sitting on the same side of the table as you when you make the very important decision about when to claim. Lastly, if you’re married, you must plan as a couple. Survivor benefits can be permanently reduced or increased depending on when your spouse claims benefits. Social Security should be simple — in fact, it’s anything but.

It used to be that Social Security’s full retirement age and Medicare eligibility aligned at age 65 and you could knock out both benefit applications at once. However, now you’re eligible to apply for Medicare up to 3 months before you turn 65, and that enrollment period is open for 7 months. You should apply ASAP, at least for Part A, in order for your coverage to begin the first day of the month of your 65th birthday. If you are still working, you’ll need to decide whether it’s worth picking up parts B and D or whether you have adequate, affordable coverage through your employer. Once you retire, you’ll have 8 months to get full Medicare coverage before your premiums are increased by penalties.

While traditional Medicare will likely cover the expenses of many of your medical needs in retirement, it will not cover long-term care expenses, except for short stays in a skilled nursing facility. According to the U.S. Department of Health and Human Services, 70% of those turning 65 will need some type of long-term care (LTC) services during their lifetime. Therefore, it’s a good idea to stress-test your financial plan to help ensure that you can afford a LTC service if needed. If you choose to buy long-term care insurance, you must factor that into your monthly or annual expenses to see if you can afford what are likely to be increasing premiums. If you decide to roll the dice, you want to be sure you have enough in assets and/or income to cover the cost.

Don’t Forget About Taxes

You’ve heard the saying that in life only two things are certain: death and taxes. While we don’t know when the former will come, we know that the tax man comes every year. That’s true even in retirement. The common assumption — and sometimes misconception — is that you will pay less in taxes once you have retired. That is another belief that depends totally on you, where you live and fiscal policy at the time. Your Federal Insurance Contributions Act (FICA) taxes will likely disappear in retirement, but so will many of your work-related deductions, including your 401K, health savings accounts, etc. My advice: Plan conservatively. You don’t want a tax hike in retirement to change your lifestyle.

There are many things to think about as you transition from your working years to your fun retirement years. Planning is advised; rolling the dice is not.

Remember, the opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

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The Sleep Habits of Successful People

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Have you ever wondered about the sleep secrets of wildly successful people? Wonder no more, we’ve got some tips you can start using today. A few simple changes to your sleep routine could help you be more productive, think better and make better decisions.

Sleeping like a champion is nothing to take lightly. A good night’s sleep is key to overall health. If you don’t put in an adequate amount of sheep counting, you could pay for it in the form of heart disease, diabetes, increased cancer risk and even early death. You can’t be productive if you’re dead, so you better get some shut-eye. Here are some sleep habits of highly successful people.

1. They Get Enough Sleep

Most successful people get close to the recommended minimum of seven hours of sleep each night. An analysis by Home Arena of the sleep habits of highly successful people found that 32% got five to six hours of sleep a night. Roughly 27% clocked in six to seven hours of sleep each night.

Getting an adequate amount of sleep is good not only for your body but also your work performance. One of the keys to productivity is having a clear, sharp mind. This is made possible through rest.

2. They Get Uninterrupted Sleep

Getting enough sleep won’t matter much if you keep waking up. If you hope to wake up rested and ready for the day, you’ll want to hang out the “do not disturb” sign. A study by researchers at Johns Hopkins University School of Medicine discovered that short, uninterrupted sleep is more beneficial for you than longer sleep that is met with several interruptions throughout the night. Those who had interrupted sleep were found to be in a worse mood than those who had solid sleep. In addition, study participants who were unable to get a good night’s sleep were at a higher risk for depression. Here’s what lead researcher Patrick Finan had to say:

To our knowledge, this is the first human experimental study to demonstrate that, despite comparable reductions in total sleep time, partial sleep loss from sleep continuity disruption is more detrimental to positive mood than partial sleep loss from delaying bedtime, even when controlling for concomitant increases in negative mood. With these findings, we provide temporal evidence in support of a putative biologic mechanism (slow wave sleep deficit) that could help explain the strong comorbidity between insomnia and depression.

A bad mood could hurt your career success. Not only will a sour attitude hamper your chances of getting a job but it could also affect your overall job satisfaction. So get some sleep so that you can shine at work and snag the best job opportunities.

3. They Get to Bed at a (Relatively) Decent Time

If you’re getting to bed late, you may want to change your ways. Getting to bed earlier can be good for your mental health. You’re better equipped to regulate your emotions if you’re rested. So if you want to prevent angry outbursts at work, you might want to change your bedtime. Another study found that those who go to bed late experience frequent negative thoughts. So go to bed earlier and be happier. Your co-workers will thank you for it.

[Editor’s note: Being on top of your finances can also improve your mood and even help you sleep better at night. If worries about money and paying bills keep you awake, you can start taking control by knowing what’s really in your credit report. You can monitor your financial goals like building good credit for free on Credit.com.]

This article originally appeared on The Cheat Sheet.  

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