Practical Tips for Improving Your Financial Health

If you will be retiring in the next five to ten years, you should look for ways to improve your financial well-being during your final working years. Imagine retiring without a comprehensive plan that will help you navigate managing the wealth that will support your lifestyle and financial security for the next 30 years or more.

This is where financial health and well-being will play a major role in the success of your retirement. Financial health isn’t solely about having enough assets or income; it’s about feeling confident in your financial situation and having a solid foundation supporting your wish list, lifestyle, and goals with an emphasis on the unexpected. Every retiree’s biggest concern is insufficient income or assets to produce the income.

Key aspects of your financial well-being include:

• You can feel secure knowing you have a stable financial foundation, including liquid assets for emergencies, manageable debt, and adequate insurance to protect against unexpected events and risks.
• Eliminate financial stress, and you can make prudent choices that align with your values and goals, such as supporting loved ones, pursuing hobbies, traveling the globe, and making contributions that benefit your favorite charities.
• Feeling confident that you and your spouse are on track to live a long, comfortable life. You are debt-free, have plenty of income, and can create a legacy knowing you have a cushion to cover life’s unexpected events.
• Knowing you can make informed financial decisions in a variety of market conditions. Or, you seek the advice of a specialized financial advisor who works with people like you.

With a team of CFP® professionals in Buffalo Grove, SGL Financial specializes in helping pre-retirees and retirees create and manage thoughtful financial plans suited to their specific needs. 

In our blog, we’ll examine five practical tips for boosting financial health as you prepare for your life’s current and future phases.

Read our latest quick guide: Financial Wellness Means Building a Healthier Financial Future

1. Optimize Your Retirement Savings

As you approach retirement, here are three key tactics to keep your retirement plan on track. First, do you have a clear picture of how much you need and how much you have accumulated? Second, do you have a realistic budget for your cost of living? And third, do you have realistic plans for making up any shortfalls in the cost of living? 

Each step helps you enter retirement with a clearer understanding of how your savings, income, and expenses interact. This knowledge will help you develop a more realistic plan for your future needs.

• Re-evaluate Your Asset Allocation: Consider your retirement savings investment mix to ensure it matches your risk tolerance and time horizon. Shifting a portion of your portfolio to more conservative investments can help protect your savings from market volatility while maintaining some growth potential for your later years.
• Plan for Required Minimum Distributions (RMDs): Once you reach age 73, the IRS requires you to take minimum withdrawals from certain retirement accounts, like traditional IRAs and 401(k)s. Make a plan for these RMDs to avoid unnecessary taxes and ensure you meet the government’s requirements, which can help you preserve more of your retirement funds for future use.
• Project Your Retirement Income Needs: Estimate your retirement expenses to ensure your savings and income cover all essential costs, lifestyle goals, and potential healthcare needs. This includes reviewing your Social Security benefits, pension accounts (401k), and planned withdrawals from other retirement accounts (IRA, savings accounts) so you can adjust your savings and spending plan accordingly.

Listen to our popular podcast episode: “Ask the Magic 8 Ball of Finance.”

2. Get a Clear Picture of Your Retirement Expenses

As you near retirement, now is not the time to worry about “keeping up with the family next door.” You should create a realistic retirement budget based on several personal disciplines. It’s about curbing expenses and paying off debts, particularly higher-interest-rate debt. But it’s also about maintaining control over your financial future so you can enjoy retirement without the financial stress.

Here’s why it’s so important:

1. You might unknowingly overspend without an accurate budget for your expenses, thereby depleting your retirement savings faster than anticipated. A realistic budget helps you control spending so your funds last longer, especially in the face of rising longevity that can make retirement last for several decades.
2. Healthcare expenses increase significantly as we age, and Medicare doesn’t cover everything. A functional budget can account for current and long-term healthcare costs, helping you avoid financial strain and providing options for levels of care later in life when you need it the most.
3. Many retirees rely on a combination of Social Security, 401(k)s, IRAs, and personal savings to fund their retirements. An accurate budget allows you to balance these income sources with your expenses, making it easier to avoid larger than anticipated withdrawals from retirement accounts, which can trigger higher taxes and reduce asset amounts that produce income.

Do you know what your financial risk comfort zone is? Listen to our recent podcast to learn more. 

3. Pay Down High-Interest Debt

One of the quickest ways to improve your financial health is to pay down high-interest debt. While focusing on building your retirement savings is good, carrying high-interest debt into your retirement years can significantly reduce your retirement assets and income. 

Start by tackling credit card debt, personal loans, or high-interest-rate mortgages. For example, your investments average an 8% return, and the interest rate on certain debts is 20%. Your goal is to pay off this debt immediately so interest savings can go into your retirement accounts. This approach ensures you’re not losing potential retirement income to interest payments. 

Consider consulting with a Buffalo Grove financial planning professional who can help structure a debt repayment plan that fits your overall financial strategy.

4. Implement a Tax-Efficient Strategy

No one wants to pay more in taxes than is legally required. This is why having a tax strategy that is part of your wealth management plan is so important, especially as you get nearer retirement or are already retired. The easiest way to improve your rates of return is to reduce the impact of any applicable taxes. 

You want your savings and investments to work for you, not against you. Taxes can reduce your retirement savings, making it tougher to pursue your retirement goals. 

Start by reviewing your investment accounts and retirement distributions with a focus on the impact of taxes. Then, consider strategies for reducing your tax liabilities now and in the future. For example, assets can be moved from a traditional IRA to a Roth IRA. Sure, you pay taxes on the transfer, but all future distributions are tax-free. Consider this strategy over the years. 

You can also benefit from tax-loss harvesting when you sell under-performing stocks with losses to offset the taxes on the sales of investments that have appreciated.

The SGL team of Buffalo Grove financial professionals specializes in creating tax-efficient plans that align with retirement goals, whether strategically withdrawing from tax-deferred accounts or timing Social Security benefits. With professional guidance, you can develop a tax plan that preserves more of your assets for retirement.

Every dollar saved is one more dollar for your future use.

Watch our co-founder, Steve Lewit, discuss live on WGN 9 News what Fed interest rate cuts could mean for you.

5. Diversify and Rebalance Your Investment Portfolio

Consistently reassessing, diversifying, and rebalancing provides a structure that allows you to weather economic changes while protecting your ability to pay for essential expenses and pursue long-term goals for financial security later in life.

As retirement approaches, your time horizon shortens, making it more crucial to limit your exposure to higher-risk investments that can negatively impact the income produced by your savings. Reassessing your current risk exposure helps you shift towards a more conservative asset allocation that prioritizes higher income and capital preservation.

Diversification—spreading investments across various asset classes—mitigates the impact of market swings in your portfolio. Diversifying reduces the likelihood of significant losses from any single investment, especially in retirement, when lower asset amounts can mean reduced income distributions.

Rebalancing involves periodically adjusting your portfolio back to your original target asset allocation. This can involve selling riskier, higher-performing assets and reinvesting in more conservative ones so your assets are not exposed to excessive risk. 

In an ideal world, you will not outlive your assets’ ability to produce sufficient income to fund a desirable lifestyle and provide financial security later in life. But it takes careful planning and prudent investment management to make this happen. Do not underestimate the need for a well-thought-out plan for your retirement years.

Ready to review your financial health and well-being? Contact the SGL Financial team today to build a plan tailored to your goals and future.