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Date: March 22, 2021

10 Ways to Make High, Short-Term Earnings Last a Lifetime

The average American gets their first full-time job at age 18 (or 22 if they go to college), then they work until they’re about 65. That’s a career that spans almost five decades!

But what happens when you condense all those earnings into a short period of time? How do you make your money last when you only have a few short years to earn it?

At Watts Gwilliam and Company, our financial advisors in Gilbert, AZ help clients nationwide do exactly that. In our experience, here are 10 tips for how to stretch high, short-term earnings over a long period of time.

1. Reduce Expenses

The less you spend now, the more you can stash away for later. Even if you have enough money to comfortably cover your bills, review your budget to see if there are any additional expenses you could reduce or eliminate.

For example, you could:

  • Negotiate cheaper bills for Internet, cell phone usage, home or renter’s insurance, cable or satellite, etc.
  • Save on housing by downsizing, refinancing or moving to an area with a lower cost of living
  • Cut out discretionary expenses you don’t use or enjoy (think gym memberships and app subscriptions)
  • Trade your car in for a cheaper model with lower insurance (or better yet, sell your car and bike to work)
  • Consolidate student loans and other debts while interest rates are low

2. Create a Retirement Budget

Creating a budget specifically for retirement will give you a clear picture of how much money you’ll need to support your ideal lifestyle.

Take a moment to think about what you want to do – travel, start your own business, remodel your house? Then create a budget around those plans.

Don’t forget to factor in expenses for things like taking a spontaneous cross-country trip to visit family as well as unexpected expenses like medical bills. Having a good cushion on your retirement budget will help ensure you don’t spend more than planned.

3. Plan for Taxes

Figuring out how and when to pull from investments without generating a large tax bill is a delicate dance — one that requires ongoing tax planning even after you retire.

If you have a high income, tax planning is even more critical as you have to deal with larger tax brackets, complex investments and other complicated nuances.

The good news is, the right tax professional and financial advisor can help you strategize the best ways to keep more of your hard-earned money (instead of losing it to Uncle Sam).

 

Have questions about your finances? Get answers! Contact the team at Watts Gwilliam and Company to see how we can help.

 

4. Don’t Forget About Inflation

Inflation is known as the silent killer of retirement because it slowly erodes the value of your money over time. You typically don’t even realize it’s happening until you get to retirement and wonder why your dollars aren’t stretching as far as they used to.

According to the Federal Reserve, the average rate of inflation is 2 percent per year. This means that if your retirement is at least 30 years long, there’s a good chance you’ll see the price of goods double in your lifetime. In other words, something that costs $500,000 today may cost $905,681 (or more) in 30 years.

Inflation will erode your buying power. There’s no question about it. Aim to save more than you think you’ll need so you can make sure you cover your bases.

5. Keep Working 

Once you retire (be it a first or second retirement), there’s nothing stopping you from finding another full-time job, picking up a side hustle or starting your own business.

In fact, many retirees find themselves wanting to work, even if they don’t need the money, to stay busy, keep their minds sharp and maintain a sense of purpose.

Plus, there’s the obvious benefit of working longer: You add a little extra padding to your savings, so you have even more money waiting when you finally retire for good.

6. Invest

Compound interest is a key to building wealth. Here’s why:

Let’s say you invest $10,000 at age 30. If you didn’t add another penny, that $10,000 could be worth $81,647.61 at age 65 and $200,805.85 at age 80, assuming an average 6 percent return.

If you delay investing until age 40 – just 10 years later – you’d only have $44,811.37 at age 65 and $110,210.02 at age 80. You could miss out on almost $100,000 in extra growth just by waiting to invest 10 years.

The key here is starting early and making the right investment decisions! Investing isn’t just picking a stock and a number to put toward it. Talk to a financial advisor about investment strategies that work for you based on your situation, your concerns, your goals and your risk tolerance. And then, revisit your plan!

At Watts Gwilliam and Company, we see so many investors with concentrated stock holdings that could be doing more for them. If this is you, read our recent blog post: How to Turn Concentrated Stock Holdings into Income Generators.

7. Look for Extra Ways to Save

Just as you should look for ways to reduce expenses (Tip #1), you should also look for ways to save money while you’re still working. For many people, there’s a simple way to do this.

Many of us receive “bonus” money throughout the year in the form of:

  • Tax refunds
  • Credit card rewards
  • Gifts
  • Bonuses
  • Stimulus checks
  • Property tax refunds

Saving this bonus money is one of the easiest ways to boost your nest egg, because you never really planned for it in your budget.

8. Optimize Your Social Security Benefits

Social Security is another complicated benefit we receive that is often taken for granted. If you’re eligible for these benefits, the earliest you can start receiving your payments is age 62. But just because you can get Social Security that soon doesn’t mean you necessarily should.

Taking your Social Security benefits before your full retirement age (for anyone born after 1960, that magic age is 67) will reduce your benefits by up to 30 percent. If you take your benefits at your full retirement age, you’ll receive 100 percent of what you’re eligible for. For every year you delay taking your benefits after your full retirement age up to age 70, your benefit will increase by 8 percent. Once you make a decision, that decision (and the amount you receive) is permanent.

While it literally pays to wait, waiting isn’t the best decision for everyone either. Consider your health, retirement plans and your spouse’s benefits, if applicable.

If you’re still years away from retirement, Social Security may not yet be on your radar, but there will come a day when it’s time to start collecting benefits. Before that day comes, talk to a financial advisor and create a game plan for when you’ll file for benefits.

9. Plan for Long-Term Care and Medical Expenses

Similar to Social Security, you may not be thinking about exuberant healthcare and long-term-care costs just yet, especially if you plan to exit the workforce at an early age. But for many retirees, healthcare is their largest expense.

In fact, it’s estimated that a healthy 65-year-old retired couple will need close to $390,000 in today’s dollars just to cover medical expenses in retirement (and that’s not including long-term-care expenses).

Do “future you” a favor by building these costs into your retirement plan now. Talk to your financial advisor about long-term-care insurance, opening a Health Savings Account (HSA), if you qualify for one, and increasing contributions to your retirement accounts. Doing what you can to pad your savings now can help you stretch your budget further later on.

10. Work with a Financial Advisor

The right financial advisor can help you stretch your money over 20, 30, 50 or even 60-plus years if you need it to last that long. (Are you working with the wrong advisor? Find out.)

At Watts Gwilliam and Company, our team of financial advisors in Gilbert, AZ is well versed in tax planning, wealth management, financial planning and retirement planning – and putting it all together – to maximize your wealth, regardless of how much you have and how long you need it to last. We’re passionate about helping you accomplish your dreams, whether that’s retiring early or starting your own business.

If you’d like help stretching your high earnings out over a lifetime, schedule a complimentary consultation with our team. We can help you determine the right financial planning strategies for your situation, so you can make your money last through retirement and beyond. Get the conversation started.

 

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David Watts
Author:

David Watts

Dave is one of the firm’s founders. He helps business owners, professional athletes, and other high-net worth clients develop and implement financial plans and strategies. He also specializes in helping those with single-stock positions to diversify and manage their financial lives. Other areas of specialty are wealth transfer plans for concentrated stockholders and business owners; tax minimization strategies for those with employee stock options; cash flow management; and risk management planning.