How to recover from a financial crisis before retirement


A personal financial setback near retirement can be doubly stressful. You face both the financial inversion and the realization that you have less time to recover the money.

SEE ALSO: Wish I Had Done This Years Ago: Financial Regrets

Maybe you had to deal with a job loss, a costly illness, a divorce or business failure. Or maybe you just haven’t saved enough or accumulated too much debt to retire.

Take Action Now: Your First Steps

How to transform your financial life?

  • Start by facing the reality of your situation. This can be easier said than done, especially when you’d rather avoid the anxiety and guilt of facing the reality that you’re financially unprepared. However, it is necessary to give you the necessary motivation and discipline. It may even be worth considering a responsible partner, whether a professional advisor or a trusted friend.
  • You need to create a budget to help establish positive cash flow as the next step. If you are spending more money than you are earning, you will need to reduce your spending immediately.
  • Go further, if necessary. If you have made cuts and your monthly income is still not enough, you will need to find a way to reduce your fixed expenses and/or increase your income. This could include anything from moving from a newer car to an older one to eliminate a payment to getting a night job at the local grocery store.

Manage your debt

In many cases, debt is one of the reasons you face a financial crisis.

To start reducing your overall debt, tackle the account with the highest interest rate first, then the next and so on. Come up with a workable plan that can eliminate debt over three to seven years depending on the monthly payment you’ve budgeted.

You might also consider restructuring your debt. This involves negotiating new repayment terms with creditors so that you can meet your monthly expenses and pay off your debts in a time that suits everyone. Whenever possible, deal directly with creditors rather than collection agencies, as this will cause less damage to your credit score. Explain your financial situation, take notes and get written confirmation of any settlement you reach.

See also: 5 tips for investors to deal with today’s stock market volatility

Work to earn more money

There are a number of financial strategies you can consider to improve your cash flow, depending on your age and circumstances.

You could look for a better paying job or a second part-time job for extra income.

As painful as it may be, you might also consider liquidating unnecessary assets, such as a vacation home or extra vehicle, to help you pay off your debt faster.

Even if you have to start with smaller amounts, set aside a percentage of your salary each pay period to replenish your cash reserve. This will help prevent a relapse into debt the next time you have an emergency.

It may be a good idea to downsize your home as a cost-cutting measure or move to a less expensive area, especially if you live in a state with high property taxes. (See The 10 Most Tax-Friendly States for Retirees.)

Not only can working longer before retirement help your savings and retirement accounts grow, it’s not the only benefit. It also means that there will be fewer years that your nest egg will have to support you. Working longer can also reduce expenses if you can take advantage of employer-sponsored health insurance.

Stick to a smart social security strategy

Avoiding the temptation to take your social security too early can also be an effective way to help your cash flow when you stop working for good.

If you delay taking it until, say, 70, instead of your full retirement age, and you live out your life expectancy, in most cases your overall payment will be higher, and monthly payments can be scheduled to begin when you finally stop working. , giving you better cash flow for your remaining years.

Consider a reverse mortgage

If it doesn’t make sense to move, you might want to investigate a reverse mortgage. (See the reverse mortgage quiz for more.) You essentially get a loan from a lender, often as a monthly payment during your retirement years, with your home as collateral. The loan does not have to be repaid until you die or are no longer living in your home.

Reverse mortgages have drawbacks, for example, forcing your heirs to sell your home unless they can afford to repay the loan. So while the pros and cons should be considered before making a decision, they can be another source of predictable retirement income.

As you take steps to recover from a financial setback, it may seem counterintuitive, but you should realize that being too cautious could be a mistake. Being too conservative with your savings can slow the growth of your retirement accounts and the resulting cash flow. For example, you may have a better chance of growing your savings faster if you feel comfortable with the higher risk of a stock and bond portfolio compared to keeping your money on deposit. at your local bank.

As you get on the right track financially, it will be essential to continue to stick to your budget. Failure to monitor spending in the past may have contributed to your current financial crisis. If you have difficulty implementing or sticking to a budget, you may benefit from working with a finance professional.

See also: Are you on the right track? Financial planning goals for each decade of your life

Chairman, Piershale Financial Group

Mike Piershale, ChFC, is President of Piershale Financial Group in Barrington, Ill. He works directly with clients on retirement and estate planning, portfolio management and insurance needs.

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