Retirement Reality Check: Navigating A Secure Future Without Investments

Preparing for retirement without investments can be challenging, but it's not impossible. Here are some key things to consider as you approach retirement without a substantial investment portfolio:

- Timing: Decide when you want to retire. This may change, but having a target retirement age will help you plan effectively.

- Lifestyle and priorities: Determine your retirement goals and priorities, such as social activities, staying active, volunteering, or pursuing new hobbies.

- Income and living costs: Estimate your daily living expenses and create a budget. Calculate your expected income from sources like Social Security, part-time work, or other retirement accounts.

- Debt management: If possible, aim to enter retirement debt-free. Create a plan to pay off any outstanding debts, such as credit card balances or mortgages.

- Savings and emergency funds: Build a savings buffer and consider contributing more to your retirement savings account if possible. Save for emergencies to give yourself a safety net for unexpected expenses.

- Housing: Evaluate your housing situation. Consider downsizing to reduce expenses or using your retirement funds to pay off your mortgage.

- Healthcare: Plan for potential healthcare costs and priorities, especially as you age.

- Retirement side jobs: Think about part-time work or remote jobs to increase your retirement income and stay active.

- Financial education: Stay informed about financial planning by reading books, following financial blogs, or subscribing to relevant newsletters.

Remember, it's essential to seek professional financial advice to ensure you're making the best decisions for your specific circumstances.

Calculate your net worth

When preparing for retirement without investments, it is crucial to understand your financial position by calculating your net worth. This involves assessing your assets and liabilities to determine your financial health and make informed decisions about your retirement plans. Here is a guide to help you through the process:

Identify Your Assets:

Assets are the valuable possessions that you own. These can be divided into liquid assets and fixed assets. Liquid assets refer to cash or items that can be quickly converted into cash without losing value. Here are some common examples of liquid assets:

• Checking and savings accounts: The total balance across all your bank accounts.
• Retirement accounts: This includes any tax-advantaged retirement savings plans, such as 401(k)s, IRAs, or pension funds.
• Investments: Stocks, bonds, mutual funds, exchange-traded funds (ETFs), and similar securities fall under this category.
• Securities: These are financial instruments that hold monetary value, such as stocks, bonds, or government-issued Treasury bonds.

Fixed assets are possessions that may take longer to convert into cash and might involve selling at a market value. Examples include:

• Real estate: This includes your primary residence and any investment properties you own.
• Vehicles: Cars, boats, or other vehicles you own.
• Other valuable possessions: Any other physical assets, such as collectibles, jewellery, or artwork, that hold significant monetary value.

Evaluate Your Liabilities:

Liabilities are the financial debts or obligations that you owe to others. These are essentially the opposite of assets and can include:

• Loans: Mortgages, car loans, student loans, or any other type of loan you are currently repaying.
• Credit card debt: Any outstanding balances on your credit cards.
• Accounts payable: Money that you owe to businesses or individuals, such as unpaid bills or invoices.
• Taxes: Income taxes, property taxes, or any other taxes that you are liable to pay.

Now that you have a comprehensive list of your assets and liabilities, it's time to calculate your net worth using the following formula:

Net Worth = Total Assets - Total Liabilities

Add up the value of all your assets and subtract the total amount of your liabilities. The resulting figure is your net worth, which can be positive or negative. A positive net worth indicates that your assets exceed your liabilities, suggesting good financial health. On the other hand, a negative net worth means your liabilities outweigh your assets, indicating a need to focus on debt reduction.

Analyze and Improve Your Net Worth:

Calculating your net worth is just the first step. It provides a snapshot of your current financial position, but you should also consider ways to improve it over time. Here are some strategies to enhance your net worth:

• Increase your assets: Look for opportunities to grow your assets by making prudent investments, saving more, or increasing your income.
• Reduce your liabilities: Focus on reducing your debts and financial obligations. Create a budget, develop a debt repayment plan, and stick to it.
• Regularly review your finances: Your net worth is not static; it can fluctuate over time. Regularly assess your financial position to make informed decisions and adjust your retirement plans accordingly.

Calculating your net worth is a crucial step in preparing for retirement without investments. It provides a clear picture of your financial health and can help you make informed decisions about saving, investing, and planning for the future. Remember, it's never too late to start, and seeking advice from a financial advisor or planner can also be beneficial.

Plan for the future

Planning for the future is an important part of preparing for retirement. Here are some steps you can take to ensure a comfortable retirement without investments:

• Timing: Decide when you want to retire. This can be a starting point and may change, but it gives you a goal to work towards.
• Lifestyle and priorities: Determine what matters most to you during retirement. This can include social activities, staying active, volunteering, or spending time with family.
• Income and living costs: Estimate your daily living costs and create a budget. Calculate your expected income from sources such as pensions, social security, or part-time work.
• Boost your retirement income: If possible, contribute more to your superannuation or similar retirement fund. This will help you have more financial security during retirement.
• Pay off debts: Create a plan to pay off any mortgages, loans, or other debts. This will reduce your financial obligations during retirement and give you more financial freedom.
• Build a savings buffer: Save an emergency fund to cover unexpected expenses, such as medical bills or home repairs. This will provide a safety net during retirement.
• Review your will and powers of attorney: Ensure that your will and powers of attorney are up to date and reflect your wishes for your assets and end-of-life care.

It is important to start planning for retirement as early as possible to take advantage of compound interest and give yourself time to build a sufficient financial cushion. Review and adjust your retirement plan regularly as your goals, financial situation, and time horizon change.

Think about working longer

If you're approaching retirement with little to no savings, you may need to work longer. This can have several advantages, including:

• More Social Security benefits: For every year you delay taking Social Security benefits past the age of eligibility at 62, your monthly payment grows by 6% to 8% until you reach 70. This can result in a larger benefit amount.
• Possibly more pension benefits: By working longer, you may be able to increase your pension benefits, depending on your plan and employer.
• Larger retirement account balances: Continuing to work allows you to contribute more to your retirement accounts, such as a 401(k) or IRA, potentially resulting in larger balances.
• Reduced retirement duration: Working longer means you won't have to stretch your retirement dollars as far, as you'll have fewer years of retirement to fund.

However, the option to work longer depends on your health and employment prospects. It's important to have a backup plan in case working longer is not a viable option for you. Additionally, it's worth noting that the traditional retirement age in the US is already moving towards 67 for people born in 1960 and later, according to the Social Security Administration.

Create a Social Security account

If you're preparing for retirement without investments, it's important to understand your Social Security options. Here's a detailed guide on creating a Social Security account:

To create a Social Security account, you must be 18 years of age or older and have a Social Security number (SSN). You can create your account through credential service providers like Login.gov or ID.me. These services securely verify your identity online.

Login.gov

Login.gov is a single sign-on platform that provides simple, secure, and private access to participating U.S. government agencies. It serves as your one government account for multiple agencies.

ID.me

ID.me is another single sign-on provider that meets the U.S. government's online identity proofing and authentication requirements. With an ID.me account, you can access many online services overseas.

Steps to Create an Account:

• Visit www.ssa.gov/myaccount to get started.
• You will have the option to create an account with Login.gov, the preferred credential service provider.
• Alternatively, you can use your existing ID.me account to access your Social Security information.
• Provide a valid email address and any other required information.
• Create your credential, which includes a username, password, and two-step verification factors.
• After creating the credential, return to the my Social Security webpage for further instructions.

It's important to note that your personal my Social Security account is for your exclusive use. No one can create or use the account on your behalf, and you should not allow anyone else to use your account under any circumstances.

By creating a Social Security account, you can take control of your retirement planning and access valuable resources to ensure a secure future, even without investments.

Make a will

Making a will is a crucial part of retirement planning and can give you peace of mind that your wishes will be carried out after your death. A will is a legal document that outlines what you want to happen to your assets when you die. It is important to have an up-to-date will, as without one, the law will decide who inherits your assets, which may not align with your wishes. Here is a step-by-step guide to making a will:

• Decide what to include in your will: Gather the paperwork for your home, any other real property (land and buildings), personal property (clothes, furniture, automobiles, etc.), life insurance policies, and bank and retirement accounts. Consider what specific items you want to go to particular individuals or charities.
• Decide who gets what: Determine who will receive your belongings, such as your spouse, children, or extended family. You can leave an equal percentage or set dollar amount to each heir and also decide to leave a portion to charity.
• Choose an executor: Select a level-headed, ethical, and responsible person you trust to ensure your wishes outlined in the will are carried out. This person will be responsible for paying off debts, appraising and selling property, delivering property to heirs, and reporting to the probate court.
• Name guardians for your children: If you have minor children, it is essential to name their guardians in your will. These individuals will take care of your children if you pass away. Choose people you trust and ensure they are willing and able to take on this responsibility.
• Sign your will in front of witnesses and a notary public: Most states require a written will to be signed and dated by the creator and witnessed by two individuals who are not heirs of the will. A self-proving affidavit, which is a notarized document confirming the validity of the will, can help witnesses avoid a court appearance if the will is challenged.
• Inform everyone involved: Let the executor, guardians, heirs, and beneficiaries know about their roles and responsibilities beforehand. It is also a good idea to get their permission and ensure they are capable and willing to take on these duties.
• Store your will in a safe place: Keep your will in a legacy drawer, which can be a physical location, such as a fireproof and waterproof file box, or a digital platform. Ensure your executor knows where to find the will and has the authority to access it.
• Consider writing a letter with your will: You may want to include a letter with your will to pass on words of encouragement or instructions to your heirs. However, ensure that the letter does not contradict the contents of your will.
• Update your will as needed: Review and update your will as your life circumstances change, such as moving to another state, having more children, or experiencing the death of an heir. If there are significant changes, it is best to create a new will and securely dispose of the old one.

While making a will can be an unpleasant task, it is a necessary step to ensure your wishes are honoured and your loved ones are taken care of after your passing.

Frequently asked questions