Do you plan to retire this year? Most of us, according to recent surveys, have not calculated if we'll have enough money for the long years of retirement. Prospective retirees who are financially unprepared for the costs of retirement will likely face these potentially unpleasant economic surprises: inflation, tax liabilities, uninsured medical expenses and the all-inclusive miscellaneous expenses - auto and home repairs, rent increases, appliance replacements and so forth.
TUTORIAL: Personal Income Tax Guide
And that's just for starters. Here's a list of nine more things you should know if you plan to retire this year. (It's not too late, but if you want to retire comfortable, you'll have to be aggressive. Check out 6 Late-Stage Retirement Catch-Up Tactics.)
1. If You Qualify for Social Security Benefits
If you're counting on Social Security benefits, make sure you're old enough to qualify. Check out the Social Security Website for information on qualifications for retirement benefits (http://www.socialsecurity.gov/) and what percentage of your maximum benefits in a dollar amount you can collect, which depends on the age at which you retire.
2. The Age at Which You'll Have to Start Withdrawing
Be aware that when you reach age 70.5 you'll have to start withdrawing money from your IRA or 401k. The money is taxable, so adjust your budget accordingly. Withdrawals from a Roth IRA are different and more complex. For a complete description of the various requirements of a Roth IRA, both while the owner is alive, and on the owner's demise, go to www.rothirarules.net.
3. Your Monthly Expenditures Once You Retire
Draw up a realistic budget indicating how much money you're going to spend monthly. Be sure to allocate a reserve fund for emergencies.
4. Your Level of Insurance Coverage
Review your insurance coverage. If you can afford it, buy long-term care insurance as soon as possible. Make sure you buy supplemental insurance for medical costs not covered by Medicare.
5. If You Need to Refinance
Even as you anticipate retirement, it's a good idea to refinance your mortgage while you're still working. Retired people often have a difficult time borrowing money, are frequently charged higher rates, and may have a difficult time making monthly payments without regular wages coming in.
6. How to Protect Your Investments
Adjust your investment portfolio to reflect your changed needs and financial circumstances. Capital preservation, rather than capital appreciation, is now a major concern. Older, retired people should not place their investments unduly at risk. Readjust your investment strategy to allocate your assets partially in safe, fixed-income instruments - quality corporate, municipal or federal bonds - a portion in stock market index funds for diversity, and some of your cash in liquid assets such as money market funds.
Whatever you do with your investments, do your homework - research before investing, know what fees are being charged, know your financial advisor and how he or she is being compensated. (Are you on track to post-work bliss? We'll tell you how to find out. See A Pre-Retirement Checkup.)
7. If Your Will Is Up to Date
Make sure your will is up to date. Name a trusted party as executor, and consult with an attorney before making changes, or drafting a new will. Ask your attorney and or tax consultant about creating a trust to avoid probate, and about other financial issues that may apply to you.
8. Your Plans for Medical Care
If you don't have one, draft a living will, which is a legal document instructing close family members and your physician and other healthcare providers on medical care you desire in the event that you are incapacitated. Living will forms are available for sale online at several websites.
9. Your Work Options
You may have to keep working part time even after "retirement" to maintain a lifestyle reasonably close to what you enjoyed during your working years. It's therefore wise to keep your working skills sharply honed and or updated so that you're able to compete in the highly competitive quest for jobs these days. Up-to-date computer skills, accounting and or administrative abilities, and other skills sought after by employers can be acquired at low cost from community colleges or local business schools.
The Bottom Line
Retiring is a major life change. Once all of your affairs are in order, you can focus on making the transition as seamless as possible. And it's not just about your finances; it's important to keep active - physically and mentally. For a healthy and happy retirement, make sure your finances are in order, and also exercise regularly, read and interact socially with family and friends. (There are several things to consider when it comes to this type of charitable giving. Make sure you're well informed. Check out Gifting Your Retirement Assets To Charity.)