Ho, ho, ho! The holidays are a time of giving and making time for friends and loved ones. It is also a time of spending money, often more than we anticipated. There are gifts, decorations, ingredients for recipes, and travel expenses to name a few.
If you are nearing retirement, you may be experiencing both the waves of excitement, able to enjoy another holiday with those that bring so much joy to your life, as well as those hollow pangs of uncertainty when it comes to curtailing holiday spending to keep from having to dip into your retirement savings. Give yourself the gift of balance and keep your holiday spending on a budget with these six tips to consider and four things to avoid:
TIPS FOR SPENDING ON A BUDGET
- Be proactive. Don’t just think about cutting back on your spending and creating a budget, do it. As Mahatma Gandhi once said, “Action expresses priorities.”
- Cheaper doesn’t necessarily mean worse. Become a comparison shopper. Take advantage of special sales and discount opportunities. Take the time to search for the best deals instead of settling on something just because you are in that store or on that website.
- Set holiday spending limits. Use prior years as a benchmark to understand areas to cut back on your spending and create limits to keep yourself in line. If necessary, you can set up spending limits on your credit cards, which are separate from the credit limit set by your lender, representing the maximum amount you can charge on the account.
- Create a family holiday gift program. Organize a theme with your family where everyone gets one gift for a family member picked at random. Doing this alone saves a significant amount of money, and no feelings get hurt in the process. According to Deloitte, Americans are expected to spend over $1,400 each over the holiday season. If you live in a more expensive city, you could spend significantly more than that.
- Start saving and buying for the holidays in advance. Instead of waiting until the last minute and purchasing all your gifts with your credit cards, start saving early. Putt money away with each paycheck, so when it comes time to purchase gifts, you aren’t dependent on credit cards.
- Consult your financial professional. Managing spending, especially during the holidays, can prove more difficult than expected. Consult a financial professional who can review your financial situation, provide insight, and even help you create a spending budget and strategy that can help mitigate some of the holiday stress and align with your financial goals.
TIPS FOR NEAR RETIREES TO AVOID
- Withdrawing money from your Roth IRA accounts. You have to be careful withdrawing money from your Roth IRA. If you don’t meet the requirements for a qualified withdrawal, you may incur taxes and possible penalties.
- Borrowing against your 401(k) plan. There are worse methods for borrowing money than from yourself. However, a significant drawback is that you are taking out money that is growing tax-free. The lower the balance in your account, the less money you will have that can compound over time, building retirement wealth.
- Opening new lines of credit and running up debt. The problem with opening new lines of credit is relatively self-explanatory. You will inevitably buy things on credit that you can’t necessarily afford and then have to pay this money back, often at a significant interest rate. Doing this can cut into the funds typically going toward your retirement.
- Try to avoid buy now, pay later offers. This is a popular method for holiday shopping because you can pay for more expensive items over time instead of shelling out all the money at once. The catch, however, is that there are often interest rates or fees attached to this type of payment. This is money that you are more or less throwing away that could instead be invested toward your retirement.
The amount of money we spend over the holidays can create significant stress and potentially damage our retirement savings. The trick is to find that balance between your holiday spending and retirement savings. Take the time to schedule a meeting with your financial professional and let your money and new spending habits work for you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
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