End Financial Stress: Get Prepared for Retirement

Emily Guy Birken, financial author and self-proclaimed ‘lifelong money nerd,’ took some time to chat with us to discuss financial planning and the importance of healthy money behaviors for retirement preparation.

Retirement is an achievement many Americans idealize as a time to relax, travel, dabble in hobbies and spend with loved ones. The reality, though, is that many people struggle financially in the last third of their life as they didn’t adequately save and invest for their futures, so they can’t enjoy their golden years with financial peace of mind. Former educator and financial enthusiast and author, Emily Guy Birken, shares fiscal insight and tips on how to organize finances in preparation of retirement.

Financial Optimism Comes from Proper Planning

Birken has always been interested in money, even though she is an English teacher by training. She jokes that finance is an “accidental career.” She notes:

“My father was a financial planner and always talked about the financial industry, so I grew up in the industry and sort of ‘took it in.’ Writing about finance has been a natural fit as I have a writing background and a very deep money interest.”

Birken’s blog and four popular books about finance resonate with the American public as the 21st century marks a time when retirement planning falls on the individual, rather than the employer. Days of pensions and stable corporate retirement plans are dwindling, which is why it’s so important to be proactive to plan for retirement. Birken discusses the importance of financial optimism and education when it comes to retirement planning:

“Financial optimism in small doses is a good thing as every generation has a different defeatism when it comes to saving money. People can feel very lost and overwhelmed when it comes to finances as they don’t know how much to save or how to invest which can lead to negativity and a ‘what’s the point in trying?’ attitude. For example, many people approaching retirement feel like they’re too behind to get started—and younger generations worry that Social Security is running out, or that they don’t necessarily need to save with the impending global catastrophe that’s sure to hit. Americans need to think about how great retirement could be with a little planning and that you are better trying than by giving up.”

Here are a few tips Birken recommends to help organize your finances in preparation of retirement:

1. Set up a bucket system for retirement income withdrawal

Strategically organizing your finances in three separate buckets of money can help you prepare for retirement and organize your investment portfolio, according to Birken. These are the buckets she recommends:

• Future – Investing in longer-term assets, such as stocks that you can ride-out volatility.
• Middle – Investing in stable investments, some stocks and bonds that keep principal.
• Near – Investing in very stable, more conservative, investments, such as Treasury bonds or municipal bonds – money you can live on the first couple of years after retirement.

You never know what will happen with the market, which is why it’s important to make sure you have emergency funds. Birken notes, “People who retired in the 2008 lost so much as a result of the recession they had to work longer or live on a lot less. If retirement is approaching, you need to revisit your portfolio and make sure at least some of your investments—your early-retirement bucket—are more conservative so that you’re not at risk. You need to plan ahead well before the ‘goodbye lunch.’”

2. Take a close look at budget and expenses

When you retire, some expenses will go down and some will go up. You may not be paying as much in gas money as you will no longer have a commute, but you will probably be paying more in leisure activity, travel or hobby costs. Birken recommends taking a detailed look at your expenses and determining what is habit or a ‘luxury’ type expense that you can live without. Saving ten to twenty dollars a week can really add up over a 30-year retirement.

3. Once you’re over 50, take a close look at your catch-up contributions

The more money you can put aside—and the earlier because of compound interest—the better off things are going to be when you’re older and will no longer have the option to work. The catch-up contribution limit is quite generous across different plan types, so it’s smart to take advantage of the contributions and any other opportunities that can boost your retirement savings.

Here are the he 2019 individual contribution limits and catch-up contribution amounts for different plans.

• IRAs: The 2019 contribution limit for IRAs and Roth IRAs is $6,000. The catch-up contribution is $1,000.
• 401(k) and Other Workplace Retirement Plans: The annual contribution limit for workplace retirement plans like 401(k)s, 403(b)s, most 457s and the government’s Thrift Savings Plan (TSP) stands at $19,000. The catch-up contribution amount for these plans is $6,000. So, you can essentially contribute up to $25,000 to these plans in 2019 if you turn 50 that year.
• SIMPLE 401(k): The contribution limit for SIMPLE retirement plan accounts is $13,000 in 2019. Meanwhile, the catch-up contribution amount is $3,000.

Be Prepared for Retirement: Financially and Mentally

Birken wrote her first book, “The 5 Years Before You Retire” specifically for the people who were in the last few years of their careers. She discusses that this is the point at which the thought of retirement gets ‘real’ and that these years are crucial to set yourself up for future fiscal success. She feels her book provides a “step-by-step process and actionable guide to help you get your financial ducks in a row when you start to realize, ‘Wow—this is really happening and I’m going to have to plan for it.’”

She says that in addition to educating yourself, seeking a professional fiduciary advisor’s help so that you don’t jeopardize the money you’ve put away can be the difference between a stressful and comfortable retirement. In addition to preparing financially, Birken stresses it’s also important to mentally prepare for retirement so that it’s a successful extension of life, rather than as a separate chapter. She notes:

“Study after study shows that well-being goes up a few months after retirement and then goes down as people are not sure who they are after work as they sort of lose their sense of purpose. Mentally preparing for retirement, in addition to financial preparation, and really thinking about what you want your life to look like can really help with the transition.”

About Emily Guy Birken:

Emily Guy Birken is a former educator and lifelong money nerd who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books: “The Five Years Before You Retire,” “Choose Your Retirement,” “Making Social Security Work for You,” and her newest title “End Financial Stress Now.” Her work has appeared on The Huffington Post, Business Insider, Kiplinger’s, MSN Money, and The New York Times online.

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