9 Things You Need to Do Before You Retire
by Gary Foreman
The things you do now could guarantee a comfortable retirement!
So you're only a few years away from retirement. Congratulations! If you're like me, when you were 20, it was hard to imagine working 40 or so years before you could retire. Truth is that those years have gone by and now you're nearing the finish line.
But that doesn't mean that you can just sit back and wait for a gold watch. First of all, most places don't hand out gold watches anymore. And secondly, you still have some things to take care of if you want a comfortable retirement.
Here are 9 things that you need to do before you retire.
Get Out of Debt
Debt is a killer if you're on a fixed income. Credit card minimum payments, auto loans, student loans, and mortgages all take the first dollars you have each month. You must pay them no matter how tight your budget.
Chances are that income after retirement will drop and perhaps by a significant amount. If you're unable to repay those debts now before you retire, what chance will you have after you retire?
Do whatever it takes within the law to repay any debts before you retire. That might mean considering transferring credit card balances to a lower rate card. It might cause you to ask for extra hours at work or even take on a second part-time job.
Yes, some of those things won't be easy or convenient, and you'll be tempted to put them off. If you do, those debts will be a heavy burden once you no longer have that regular paycheck.
Estimate How Much Retirement Income You'll Have and Make Necessary Adjustments
While we all look forward to not having to show up for work, let's face it, we will miss the paycheck. That's why it's vital to estimate how much income you'll have in retirement.
The common sources of retirement income include Social Security, pensions, retirement savings plans (IRAs, 401Ks, etc), general savings accounts, passive income sources (rental properties, etc.), part-time work, and self-employed income. You'll need to estimate how much income you can expect from each source.
For many retirees, Social Security is a major element of their retirement income. Although it was never meant to be the sole source of a retiree's income, many try to live on Social Security alone.
To estimate how much you'll receive from Social Security, you can visit their estimator. You'll be asked a few questions including how much you made last year.
Will you have any pension benefits coming your way? If so, you'll need to contact the pension administrator to find out how much you'll receive and what you'll need to do to begin receiving benefits.
Next, you'll want to estimate how much your retirement and savings accounts can provide each year. As a general rule, financial advisors say that you can expect to take 4% of your invested assets each year without depleting them. Some planners have more sophisticated formulas, but the 4% estimate is good enough for a pre-retirement figure.
If you have any passive income sources, you'll want to add them to your income estimate. Many people have rental properties, hobby income, or even blogs that throw off regular monthly income. Even if you don't have any passive income now, you may be planning on creating some once you retire.
You may choose to work part-time. Many work because they need the income. Others work to stay active. To estimate how much you might earn, you'll probably need to do a little research to check on job availability and what level of wages you can expect.
You'll want to total all these sources to know how much income you'll have in retirement. Failure to take the time to calculate your expected income can leave you in a position where you don't have enough money for the lifestyle you want.
Decide When You'll Begin Taking Social Security
For most of us, Social Security will be a major part of our monthly income. You can begin collecting when you reach age 62, but you may choose to delay benefits until you reach age 70.
Why delay? Because the longer you wait the bigger your monthly checks will be. The reduction is greatest if you begin benefits before you reach your full retirement age (between 65 and 67 depending on your birth year).
Knowing when to begin collecting SS isn't an exact science. Much of it depends on whether you need the income right away and how long you expect to live. You may want to use this tool to help you make a decision.
Create a Budget Based On Your New Income
If you're like most people, you don't like the idea of a budget, but at this stage of your life, a budget is really just a plan for your financial future. It's a way of projecting what will happen with your money, and it is the best way to avoid serious problems after you retire.
Expect your monthly expenses to change when you retire. All your work-related expenses (transportation to work, clothes, lunches, etc.) will cease. Depending on your work, those expenses can be significant.
But you're likely to take on some new expenses, too. Many retirees for years have dreamed of the travels they'd take when they had time. Others throw themselves into hobbies.
As you get older, other expenses can increase. Depending on your age when you retire, Medicare may cover many of your medical bills but not all. You'll probably want to buy one of the supplemental plans that are available.
You may also need to hire help for household chores that you can no longer do.
If you're planning on downsizing, you'll need to include those changes to your expenses.
After you've estimated your after-retirement expenses, you'll need to compare them to your expected income. Now is the time to resolve any shortfall. You'll find that your options may be limited after you retire.
Save Like Crazy
Many of us haven't saved enough for retirement. Fidelity investments suggest that you have eight times your annual salary saved by the time you reach age 60. According to the Census Bureau, the average net worth of Americans aged 55-64 is $45,447, so most of us are nowhere near the goal.
Even if it means sacrificing, now is the time to do everything in your power to save. Passing up that all-inclusive vacation or cruise the next few years could make the trips you'll want to take after retiring more affordable.
Take advantage of “catch up clauses” that allow you to put more into your retirement accounts in the last years you work. If you're 50 or older, you can add thousands of dollars above the normal maximums to your retirement accounts. This is especially important if you haven't saved enough. Not only will you increase the amount you'll have in savings after you retire, but you'll also reduce your taxes this year.
You may even want to consider a part-time job. Giving up weekends and days off is tough, but tougher still is retiring when you don't have sufficient income to enjoy it.
Review Your Estate Plan
Every adult should have a will, power of attorney, and appropriate medical directives. It's especially important as you age. With the lifestyle changes you'll experience in retirement, it's a natural time to review your end-of-life planning. Make sure you get competent advice when creating your documents. You don't want your heirs to find out that the DIY will you prepared isn't valid.
Plan for Changes in Your Medical Insurance
If you've been paying for your own insurance, you know that it's one of the biggest bills each month. At some point, you'll transition to Medicare. You'll be eligible for Medicare when you reach age 65 (earlier if you're on disability).
So if you retire before 65, you'll need to make provision for medical insurance. And, if you retire at age 65, you'll still need to consider the various Medicare supplements. These supplements are designed to help with co-payments, coinsurance, and deductibles. There are a variety of standardized plans to choose from. The Medicare.gov website has a good page explaining the various plans.
Prepare for Lifestyle Changes
Retiring is one of those big events in your life. And just like you made plans prior to your marriage or the birth of your first baby, you need to make plans now before you retire. You'll face decisions on where to live, whether to work part-time, how to spend your time, etc. You may have been thinking about these questions for quite awhile, but now is the time to begin to finalize your plans.
Decide What's On Your Bucket List
We all need a reason to get out of bed in the morning. Before you retire, think of all the things that you've put off but now will have the time to do.
You may be tempted to find your favorite easy chair and park it, but studies show that keeping active is one of the keys to longevity. And anyway, if you don't keep busy, it's likely that you'll just sit in front of the TV (and probably upset your spouse).
Enjoy Your Retirement
We all have dreams about what retirement will look like. Whether you've taken the steps to make that dream a reality or not, there are some things that you can do now that will put a happier retirement within reach. Hope you enjoy it!
BIO: Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, and US News Money.
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