If you plan to retire soon or are at least considering it, now is a good time to check your retirement readiness by reviewing these 10 essential pre-retirement questions and to-dos. Getting clarity on each of these will go a long way to help ensure your able to live the retirement lifestyle you desire.
1. How Will You Fill All Those Leisure Hours After You Quit Job?
Your finances alone shouldn’t drive your retirement decisions. Certainly, it can be appealing to dream about all the things you’ll be able to do with your free time once you retire. But if your sense of purpose stays at work after you’ve packed up your desk or hung up your tool belt for the last time, then all of that free time may be more of a curse than a blessing. (For more, see: Will Your Retirement Income Be Enough?)
You might want to work part time after you retire, or maybe you’ll opt to volunteer. Or, maybe your retirement purpose is about spending more time with family. Be certain to then properly align your retirement income with your desired lifestyle.
2. Can You Afford to Retire?
After spending years dreaming about your retirement lifestyle, you now need to calculate what that vision will cost and whether you have accumulated enough to make it happen.
Create a retirement budget and test drive it. Once you stop working, you’ll have to adjust to the reality of living off what you’ve saved all those years, plus any Social Security and other retirement income you may have. By test driving your budget, it can help you feel more confident about your retirement readiness while also identifying any areas that may need adjusting.
3. When Should You Apply for Social Security?
One of the most important retirement planning decisions you will make is how and when to claim your Social Security benefits. It may be tempting to claim your benefits right away, as early as age 62, but this will result in a permanently reduced benefit. The difference between taking your benefits at age 62 versus waiting until your full retirement age (which is 66 for those born before 1955) is 25% more income over your lifetime. Also, every year you delay receiving your benefits after your full retirement age, up until age 70, increases your income by 8% per year. (For more, see: Saving for Retirement: The Quest for Success.)
The key is to understand all of your claiming options so you can maximize your Social Security income, well before you retire, to ensure you factor in the most accurate social security income projections into your planning.
4. How Will You Generate Income Needed from Your Retirement Savings?
As you prepare to transition into retirement, your retirement funds need to transition along with you. Repositioning your retirement assets that are now in the accumulation and growth stage to a retirement distribution phase that will provide you with a lifetime income takes careful planning.
Creating an income plan from your retirement funds requires considering the impact of inflation, your lifestyle income needs, taxes, your tolerance for risk and market volatility. Your income strategy should be tested under various earnings and withdrawal rate scenarios to compare possible outcomes.
5. Evaluate Health insurance Options
If you plan to retire before age 65, you may have a gap in health insurance between any current employer-sponsored health benefits and your move to Medicare at age 65. Obtaining health insurance during any coverage gap can be a major expense that needs to be considered and included in your retirement-income plan.
Be certain to also calculate the cost of your Medicare Part B premiums when you are estimating your Social Security retirement income, as these costs are generally deducted directly from your payments each month.
6. How Will You Handle Potential Long-Term Care Expenses During Retirement?
With median long-term care costs ranging from $1,473 to $7,698 a month nationwide, this unexpected expense can wreak havoc on most anyone’s retirement income plans and most long-term care costs are not covered by health insurance or Medicare. (For related reading, see: Managing Income During Retirement.)
It’s important to evaluate your potential options should you or your spouse suffer a debilitating illness in retirement, and assess whether long-term care insurance may be an option. And if not, what other strategies may be available to you to help ensure you have adequate assets and income available to meet both your health-care and income needs.
7. Determine Where You Want to Live After You Retire
A recent survey by Bankrate found that three out of five Americans would like to move to another city or state after they retire. Maybe you’re eager to move to a warmer client or be closer to your children and grandchildren, or maybe you want to move to a tropical paradise in another country. If moving to a new locale is part of your retirement plans, the cost of living in that location should be incorporated into your overall planning and budgeting.
8. Compare Taxes Today to What They May Be As You Head into Retirement
To get a better understanding of what your income tax situation may look like in retirement, review your sources of retirement income and what portion will be taxable, such as distributions from a 401(k) or traditional IRA. Take a look at your current tax deductions and whether these same deductions or others will be available when you retire. And if you are planning on moving as discussed earlier, be sure to review any potential changes in income, local, state and property taxes, and even changes in potential inheritance taxes for your heirs.
9. Review Major Expenses You May Want to Take Care of Before Retiring
Will your car need replacing soon? How about your roof, hot water heater, driveway, windows or other major household item? Consider getting these items dealt with before you retire to reduce the likelihood of financial shocks in retirement.
10. Prepare for the Unexpected With An Adequate Emergency Fund
Unexpected expenses in retirement can deplete your retirement savings faster than you might expect. Whether it’s major home repairs, dental expenses, caring for a family member or other unforeseen costs, you want to be prepared. Having six to nine months of regular expenses stashed in an emergency fund will help ensure that you avoid using assets earmarked for your monthly income.
In summary, as you can see from these 10 essential pre-retirement questions and to-dos, the decision of when and how to retire is big - perhaps the biggest decision you’ll ever make. Even if you’ve never met with a financial planner before,you may want to consider doing so. (For more from this author, see: How the Unexpected Can Drain Retirement Income.)
Securities and Investment Advisory Services are offered through Signator Investors, Inc., Member FINRA/SIPC, a Registered Investment Advisor. AspenCross Wealth Management is independent of Signator Investors, Inc. 1400 Computer Drive, Westborough, MA 01581.