If you’re looking forward to retirement, you’re not alone. Countless workers dream of leaving their jobs behind and enjoying the freedom of unstructured days. But before you pull the trigger on retirement, be sure to tackle the following moves so you don’t regret your decision later.
1. Assess your personal savings
Hopefully, you spent a good portion of your working years saving money in an IRA or 401(k). If you’re thinking about retirement, now is the time to evaluate your balance and see what it really means in terms of usable everyday cash. It’s easy enough to look at, say, a $500,000 IRA balance and think, “Wow, that’s a lot of money.” But if we apply a 4% annual withdrawal rate, which has long been the standard, that $500,000 translates into just $20,000 in annual income, give or take some adjustments for inflation.
Of course, this number doesn’t take into account other sources of income you may have available, such as rental income or earnings from a part-time job. It also does not affect social security. The point, however, is to look beyond the number you see on your retirement plan statement and determine how much income it will actually provide you.
2. Map out a retirement budget
Maybe you’re used to following a budget and keeping a close eye on your spending. While this is certainly a positive habit to celebrate, once you stop working, your expenses are likely to change — for better and for worse. While you may save money on things like moving and transportation (retirement may allow you to downsize from a two-vehicle household to a single vehicle, thereby saving money on maintenance and insurance costs), you may spend more money on things like recreation as you will have extra free time on your hands.
Before you retire, create a new budget that details the expenses you expect to face when your career ends. You’ll likely need to tweak this budget as you go, but putting one in place will give you a good sense of whether your nest egg will be enough during your golden years, or if you’ll need to save more before you become an employee. retirement.
3. Read about health care costs
We all know that health care can be expensive at any stage of life, but you might be surprised to learn that the average 65-year-old man today will spend $189,687 on medical care during retirement, while the average 65-year-old woman will spend $214,565 $. Ouch. Worse, these figures don’t account for long-term care — which 70% of seniors 65 and older are statistically likely to need.
The good news, however, is that the more educated you are about what senior healthcare costs can look like, the better equipped you will be to manage and keep them to a minimum. Along these lines, it’s worth considering long-term care insurance, which can help cover some of the astronomical costs that seniors face when they inevitably end up needing a nursing home or assisted living facility.
4. Develop a strategy for claiming Social Security
If you’re like most seniors, Social Security will come to provide a large portion of your retirement income. But while your benefits themselves are calculated based on how much you earn over your career, the age at which you first applied for them can cause that number to rise, fall or stay the same. That’s why it’s important to create a strategy for claiming benefits rather than going in blind.
For example, if you apply for benefits at your full retirement age, which is either 66, 67 or 66 years and a certain number of months, you will receive the full monthly benefit you are entitled to based on your work history. If you delay past full retirement age, your benefits will increase. And if you file before full retirement age, you’ll face a reduction in benefits, but you’ll also get your money sooner. There is no right or wrong answer when it comes to choosing a deposit age, but what you need to do is know your full retirement age and understand the implications of claiming benefits at different times.
5. Think about what you will do with your time
While the idea of ​​having all the free time in the world may seem appealing, once you find yourself in that situation, reality can hit you hard. The truth is, it’s hard to go from a full-time schedule to a complete lack of structure, which explains why so many retirees end up falling prey to depression.
If you’d rather avoid that fate, create a plan for spending your new free time and make sure it aligns with your budget and income. You might think you’ll be golfing twice a week and traveling once a month, but if your savings can’t support that lifestyle, you’ll need to come up with a different plan.
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Retirement can be an exciting and rewarding time in life, provided you prepare for it. Get these essential moves before you call it quits on the work front, and with any luck, you’ll end up making the most of your golden years.
CNNMoney (New York) First published September 17, 2018: 9:39 am ET
