While we all eagerly await our retirement years, some go in better than others-and preparing ahead of time will make a world of differences in your finances, your quality of life, and your peace of mind.
So, to make sure you do go in well-prepared, I constructed a list with the help of gobankingrates.com, cherry-picking some of their ideas, those that I encounter on a daily basis when advising clients.
1. First And Foremost, Check Your Emotional Readiness
Just because there is a magical retirement age of 65 doesn’t mean you have to fir into what is expected. You want to ask yourself why you are retiring. Is it to launch into a life of leisure, or is it just that you are tired of what you have been doing for oh-so many years?
I find that many people say they want to retire, but the act itself is complicated and can touch up many issues, both financial and emotional. Some soul-searching may be in order before you take this very important step.
2. Bone Up On Interests And Hobbies
What are you going to do in retirement? I talk to some who say: “Nothing but play golf every day.” I understand this desire to get our of the rat-race and pursue a hobby, but retirement can be a very long period, and it seems an active person would grow bored within a few years.
So, are there any other interests or hobbies that excite your imagination? Visiting a country of your great-grandparents or sailing to exotic locations? Taking a world tour? Writing a book? Picking up the guitar or the saxophone again and forming a band? Why not?!?
If this is the way you’re thinking, a little pre-planning is in order. Here are a few ideas.
Whether you are pursuing a passion or looking for extra income, use the years leading up to retirement to build the skills, resources, and professional network you’ll need to earn additional income after you leave your current job.
3. Get Organized
The article suggests, and I quote: “Organization isn’t just to make your life easier in retirement; it’s also so loves ones can easily find key documents in case of emergency.” But organization can go a long way to clear the mind of clutter – and mental clutter can be your biggest enemy.
Also, you want to start mapping out a post-retirement budget. When you’re working, you’re getting a nice monthly pay-check and maybe some corporate perks, but all that goes away in retirement.
So, where are your paychecks going to come from? Do you have a pension? When should you take social security? How much can you spend of your savings to support your life and be sure your money lasts?
These are big questions and while some are easy to answer, not all can be determined simplistically. Consulting a good Financial Planner can help greatly in this stage of preparation.
4. Avoid Lifestyle Inflation
The years leading up to retirement are when your income will likely be at its highest – use of this higher income to add to savings. Don’t let salary raises lead to lifestyle inflation. Keep your budget in check and take a close look at your monthly expenses to identify what you can do without. This gradual approach will let you significantly cut your monthly expenses without feeling the shock of adjustment, and the money saved will give you the added benefit of boosting your retirement nest egg as well.
5. Check Your Savings Numbers
Carefully check your retirement numbers before you abandon the safety-net of a regular paycheck. Some advisors recommend having roughly 10 to 12 times your final salary saved up before you start your retirement. I think you’ll need more in line of 15 to 20. Either way, the more, the better.
6. Coordinate Timing With Your Partner
It is fun to think of retiring together and immediately embarking on your elaborate travel plans, but if one of you continues to work for a little while, you can both benefit from the employer’s benefit package. The medical coverage alone may have a significant impact.
7. Consider Your Financial Accounts
This is a very good idea because it’s easier to keep track of your investment income when your accounts are in as few places as possible. It also simplifies record keeping for easier cash-flow tracking.
Another vital move you should consider with your investment portfolio is to reduce risk as you approach your retirement date. We start reducing risk up to 2 years prior to the target date, because we want to make sure your portfolio doesn’t decline steeply right when you begin taking income. Making a mistake at this juncture can have a negative impact on your wealth for the rest of your life.
8. Create A Distribution Strategy
Think of your savings as two distinct stages. First, there is the accumulation stage, and then there is the distribution stage. Needless to say, each stage has its own set of goals and strategies. Again, working with an investment advisor and planner can help you navigate these tricky waters.
9. Eliminate High-Interest Debt
High-interest debt can quickly eat away at any retirement budget. Credit card debt can carry an interest rate of up to 20 percent. Get rid of your student loan debt because it never goes away, and the government can choose to withhold your Social Security benefits if you have outstanding loans.
10. Secure Long-Term Care Insurance
Look into long-term care insurance. It’s not cheap and not for everyone, but it’s worth a good hard look to see if it fits within your budget. Maybe, if you have saved enough, you can self-fund the need for long-term care.
11. Refinance Or Pay Off Your Mortgage
The thing you absolutely must do is straighten out your mortgage financing before retiring. Lending is based on income, and if your income drops and you’re no longer receiving a paycheck, you may not qualify for a new mortgage after retirement.
12. Know How Your Income Affects Your Taxes
Look at your future taxes. For example, social security payments can be taxable at certain income levels. It’s important that you work this into your calculations.
13. Apply For A Reduced Real Property Tax Program
Check to see if your state offers property tax relief for qualifying seniors. This is a savings many people overlook.
14. Review Family Financial Obligations
There is an emotional drive to help loved ones financially, but doing so can erode a nest egg. Helping out family and friends is great, but don’t do it at the expense of your retirement savings. Outliving your resources is a real risk. So, even if you think you have the cash available, remember that your children and grand-children will have a longer time to accumulate the money they will need. In this case, think of yourself first. If you run out of money, they will too.
15. Review Life Insurance Coverage
Life insurance serves the purpose of purpose creating a lump sum of assets when there is none. These assets can then be used to provide income to the survivor. If you have accumulated assets, your need for life insurance may go down, so try to figure out how much life insurance you really need, if any.
So there you have it. Some good advice from other advisors and some from myself, learned from 35 years as an investment professional.