10 Last-Minute Retirement Tips
In the United States, there are about 78 million baby boomers. By 2008, the oldest had already turned 62, the earliest eligible age for Social Security benefits. Over the next 10 years, many more are expected to retire or at least start to think seriously about their retirement situation. The stakes are high, and blunders in the months leading up to your retirement can haunt you for the rest of your life. Here are some of the important steps you should consider prior to entering your golden years.
Prepare a Retirement Income Plan
The very first step that every soon-to-be retiree should take is to construct a written budget and balance sheet. In the budget, you'll need to look into the future and determine your cash inflows (income) and cash outflows (expenses).
Next, you should draw up a simple balance sheet listing your assets and debts to help determine your net worth. Since many retirees will need to live off a portion of their savings, it's important to know your bottom line. You'll also need to factor taxes into your retirement equation.
Think About Social Security
If you're eligible to receive Social Security retirement benefits, you should contact the Social Security Administration (SSA) for an estimate of your entitlement approximately six months prior to your actual retirement date. Once you've obtained this quote, you can review the current benefits associated with the various retirement dates you're considering. When you've decided on a retirement age, you should file your SSA application three to four months prior to actually retiring.
Set Up Healthcare
As you contemplate your retirement, you'll need to consider your health insurance and how you plan on paying for it. If you retire early, do you have the option to still use employer-provided health insurance for you and your spouse or do you need to seek out private insurance? Even at the normal retirement age Medicare will help but you'll still have to foot some of the bill.
Discuss Pension Options
If you're still one of the "lucky ones" that qualifies for a company pension plan, you'll want to contact your administrator about six months prior to retirement for your payout options. One of your most difficult decisions will be whether to take a single or joint life payout, so you'll need to think this through carefully. If you aren't receiving a pension, you'll still need to think about 401(k) rollovers or other distribution options. If you have company stock options, you may want to consult a financial professional so you don't end up with a huge tax bill when you cash out.
Consider Long-Term Care Insurance
One of the most frequently overlooked areas of life planning is long-term care insurance in the event that you or your spouse needs some form of specialized care or assistance. Consider policies that have coverage for help with daily activities, adult day care, assisted living services, visiting home nurses and nursing care. A policy that covers both spouses will afford you the best rates and eliminate the gamble of which spouse will need care first. Some companies now allow you to pay off the policy with a lump-sum payment, thus avoiding monthly or annual premiums.
Establish a Cash Emergency Fund
An emergency cash fund is there to get you through the hard times. It acts as a safety net in case something expensive or unplanned happens, such as medical expenses, market downturns or expensive home maintenance issues, just to name a few. During normal economic conditions, most retirees should have three to six months of emergency cash reserves available. These should be separate from their investment portfolios.
Update Estate Documents
Many people think that just because they have a small estate or low net worth that they do not need any estate planning. This couldn't be farther from the truth; retirement requires even more life planning solutions than during the working years. Some of the more common items to consider include power of attorney, healthcare surrogates, beneficiary updates (IRAs, annuities, 401(k) plan, etc.).
Consolidate Your Assets
Why do we tend to have several different and sometimes identical accounts at several different banks, brokerage firms or even past employers? Retirement is a great time to take your finances by the horns and round up the paperwork posse. Consider consolidating all of those 401(k) plans into an individual IRA or possibly working with only one or two custodians.
It's good to alternate which spouse pays the bills every once in a while as well to make sure that you both understand the family expenses, investments and insurance policies. If one of you dies, the other spouse should be prepared to assume those responsibilities
Make Large Purchases
As you prepare for retirement, you may have your sights on one or several big-ticket items such as a boat, new car or home. Consider making these large purchases and paying them off before you hit retirement, while you are still earning income. You may also want to pay off existing or new insurance policies, start on your estate plan and take care of other debts prior to your retirement date.
Review Life Insurance Needs
Life events such as marriage, divorce, new babies, career changes and retirement change everything. These events are prime opportunities to review beneficiaries on life insurance policies, obtain more or less insurance and look into whether you qualify for the reduced rates that may come along with being a senior. Whatever the case may be, a review should definitely be considered.
The several months prior to retirement require lots of research, planning and time in order to make prudent and knowledgeable decisions. Pre-retirees should get their CPAs, financial planners and estate attorneys in on the process in order to cover all of the different avenues. Doing so will ensure that nothing is missed and help to confirm that retirement is a sustainable reality. Choosing to retire is a major life decision, so don't take it lightly.