Suze Orman's 5 rules to avoid going broke in retirement - home

After decades of hard work, Americans hope to retire rich enough to spend more decades enjoying their retirement.

But if you ask financial expert Susie Orman, the average person would be very, very short. Instead of long decades, their savings will last about three years.

Currently, the average savings held in US retirement accounts is just $65,000, according to a study released by the Federal Reserve in September 2020. Meanwhile, the government says households led by seniors 65 and older are spending On average, about $47,600 per year.

If you want more than three good years, Orman’s book The Ultimate Retirement Guide for Over-50s It presents five basic rules to ensure a comfortable retirement.

1. Take a closer look at your money

Orman says that if you haven’t already, it’s time to step back and take a deep look at your budget.

Compare what you spend with what you save. Cut back on fat where possible and cut back on any unnecessary spending so you can allocate more to your retirement savings column.

Do you own a home and plan to stay in it until retirement? Then Orman says you need to make a plan now to make sure you pay off your mortgage in full before you retire.

Not sure how? Refinancing a mortgage with interest rates that are still historically low today can save you hundreds of dollars a month and make it possible to get out of your home loan sooner.

2. Downsize your home

You may have a lot of emotional reasons for wanting to stay in your current home, but if the space is more than you need and you can make money off of it, you may want to consider selling now.

Orman says not waiting until you have to sell the house makes sense, because if you invest the profits now, you’ll get much more interest than if you waited another 10 or 15 years.

“I don’t want you to wait until you’re 60 or 70 to sell this house,” she says. “I want you to scale back now, so you can start saving more money now.”

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While some may be reluctant to give away their family’s homes, a smaller space is easier to clean, cheaper to operate, will cost you less in home insurance and will be more accessible as you age.

3. Boost your emergency fund

Financial experts typically recommend that you have an emergency fund of at least three to six months of living expenses, and Orman actually recommends that you make these two or three years.

Yes, the value of the three-year expenses in the emergency fund. Her logic is that if a market pullback occurs, you won’t want to withdraw from your retirement accounts until it rebounds.

With a large emergency fund, you will be able to get by until it is again safe to withdraw money from your retirement account. If you need a little help setting up your emergency fund, you may turn to one of the convenient online financial planners today.

4. Invest in a Roth IRA

To avoid paying taxes when withdrawing money from your retirement account, Orman recommends going with a Roth IRA.

“Later in life, you want to be able to take that money tax-free,” she explains.

Because your contributions to a Roth account are after-tax, you don’t have to deal with deductions when you withdraw. On the other hand, traditional IRAs aren’t taxed when you make contributions, so you end up paying later.

Most banks and brokerage firms offer these accounts. And if you’re not keen on making big investment decisions on your own, you can open an IRA through an automated advisor that manages the retirement account for you.

A well-known bot advisor will help you increase your savings by investing your “surplus cash” from your daily purchases.

5. Update your investment portfolio

A “set it and forget it” approach to your portfolio rarely pays off. You should revisit your portfolio regularly and ensure that it remains in line with your financial goals and timelines.

Orman recommends either stocks or exchange-traded funds (ETFs) that pay dividends. So even if the market experiences a downturn, your investments will still provide you with some income.

“If you happen to come across a patch where the market is starting to dip, you want those stocks to continue to provide you income,” she adds.

Check with your financial advisor to make sure your balance of cash, stocks, and bonds is appropriate for your retirement goals. Try to reduce your costs by using an investment service that offers commission-free deals.

You might consider diversifying your investments by going beyond stocks, perhaps by investing some money in farmland or investing in fine arts.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.