Many American workers are not preparing for retirement and it’s stressing them out, according to a study by the Employee Benefit Research Institute
The study reports that 3 in 10 workers feel mentally or emotionally stressed about retirement preparation. With only 38% of workers having estimated how much monthly income they will need during retirement, it’s not difficult to see why. If you don’t want to be one of these stressed-out workers, take steps now to plan for your future. (For related reading, see: Why Plan for Retirement?)
8 Steps to Take Before Retiring
- Figure out how much money you will need to spend each month. Do this on an after-tax basis. A good place to start is how much you’re spending now and then back out things like 401(k) and IRA contributions and Social Security and Medicare taxes.
- Determine what your sources of income will be. Will you have a pension from your employer or will you be relying on Social Security and your investments only?
- Estimate the taxes on your sources of income. If you have a pension, that income is taxable. Part of your Social Security income may also be taxable. The taxes on income from your investments will depend on the type of account your investments are held in. This is an important step because you can only spend the after-tax amounts.
- Run pension estimates. Assuming you will have a pension from your employer, they probably have an online pension estimator that estimates your pension based on some formula of years of service and your age. Make sure you’re not leaving money on the table by leaving just a little too soon. Depending on your employer’s formula, continuing to work for another month or two could mean a fairly significant increase in pension benefit.
- Review your investment strategy. Do you need to make changes to adapt to your new retirement? You have been investing to accumulate over your career. Now you will need to pull income from your investments but also grow them for later in retirement. Your investment strategy will need to help you meet both of these needs.
- Estimate the cost of health care. Does your employer offer retiree medical coverage? You’ll need to know how much Medicare and Medigap policies will cost.
- Try to have your mortgage paid off before you retire. If it’s not paid off, look into refinancing before you retire. Once you’re retired with no earned income you may find you’ll have a harder time getting a loan.
- Decide what you will do when you don’t have to get up and go to work anymore. And what your spouse will do. I know of a couple where the husband retired and after a few months the wife went out and got a part-time job to get out of the house. It must have been a little too much togetherness.
Getting Started Is Hardest Part
Retirement planning doesn’t have to be daunting. Getting started is the hardest part. You can put off planning, but retirement will come whether you’re prepared or not. Start preparing now. (For more from this author, see: Where to Invest Money You'll Need Within Five Years.)