Financial Advice for Pensioners
With careful planning, pensioners can enjoy a life free of serious financial struggles. The key is to know exactly what income is coming in and to keep expenses as low as possible.
Practical Financial Advice for People on Pensions
Annuity Payments or Lump Sum?
Some pensioners are given the option to select a lump sum for their pension instead of opting for monthly payments. The decision of which option to choose depends largely on the financial needs of the individual.
- Annuity payments: Most financial experts point to payments as the best option for most pensioners. BankRate advises that in most cases, a monthly annuity is the best decision since the monthly income is predictable and recurring.
- Lump sum: This option can be appropriate in some instances. For example, pensioners who want to pay off high-interest debt, and who will have other sources of income throughout their retirement, may find the lump sum option the best financial option for them. Some may want to invest this payout in a business or other type of venture.
Avoid Additional Credit
If your pension is your main source of income, and you have to stretch your dollars every month to make ends meet, it may be time to switch to an all-cash system devoid of credit. Financial guru Dave Ramsey advises pensioners to get out of debt and [[How to Stay Out of Credit Card Debt|stay out of debt] for good.
Protect Your Assets
Retirement is not the time to get involved with high risk investments, especially if you are counting on your investments to provide income throughout your retirement. Consider annuities or other investments that do not feature high risk.
Don't stop saving money just because you're in retirement. You should still set money aside in your budget to go into an interest-bearing deposit account. Ramsey suggests that an emergency fund to cover three to six month worth of bills is the first priority when saving. Once this account is in place, there is an incredibly wide variety of options for saving when in retirement. Depending on age and income, some pensioners are still eligible to deposit money into tax-sheltered retirement accounts. Speak with a financial advisor or tax professional to find out what saving options are best for your specific situation.
Downsize if Necessary
Living off a pension can force some changes, such as a smaller home or a more economical car. Prepare to make adjustments when it's necessary to stretch your pension further. Whether this means skipping a vacation or selling a vacation home, many pensioners find themselves adjusting the way they spend their money. Familiarize yourself with credible resources for stretching your money further, such as On a Dime or Wise Bread. Living off a pension does not have to equal living a deprived life, especially if you learn the tricks to everyday savings of your money.
Consider a Reverse Mortgage
A reverse mortgage can provide a monthly income or a lump sum for eligible homeowners. If your pension is not sufficient for your needs, and you have already tried cutting back on your expenses, then you may want to consider a reverse mortgage to augment your retirement income. The Department of Housing and Urban Development explains that you are eligible for a reverse mortgage if you are age 62 or older and own your home with little or no balance owed.
Know Your Rights
Pensioners have certain rights afforded to them by The Pension Protection Act. Learn what your rights are regarding charitable donations made directly through your IRA (Investment Retirement Account) as well as the punishment for companies that don't fulfill their pension obligations. Other federal legislation, such as the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act is another legal measure enacted to protect pensioners.