Retirement planning isn't something you can do overnight. It can take years to fully prepare for retirement, both mentally and financially.
Having a clear roadmap to follow can help you with that, particularly if you don't have children who may be able to help with financial planning in your later years. If you'll be entering retirement solo or you and your spouse are childless, here are six important steps to take to prepare for retirement now.
1. Assign Power of Attorney
Assigning power of attorney can ensure that your finances are managed according to your wishes if you're unable to make decisions on your own behalf. The person who holds your power of attorney has the authority to manage your finances when you are incapacitated.
When choosing a power of attorney, select someone you trust completely to have your best interests at heart. For instance, that may be your spouse but if you're unmarried, you can set up a revocable trust and appoint your bank as your trustee. The trustee would then handle everything from paying bills to filing insurance claims to maintaining/selling your home when you are unable to handle these tasks.
If you're establishing a trust, consider naming a successor trustee. This person can take over trustee duties if the person you named initially is no longer able to handle their responsibilities.
2. Make a Will
It’s particularly important for people without immediate family to detail their wishes for the distribution of property, burial arrangements, and even guardianship of any pets. That's where a last will and testament comes in.
When drafting a will, take time to learn the rules for will-making in your state. For example, some states allow legal wills to be handwritten while others do not. Or, you may need to have the will witnessed by a certain number of people. Remember also that you'll need to ask a trusted person to carry out your final wishes as executor of the will.
3. Name a Medical Proxy
A medical proxy is someone who has the legal authority to make decisions about your health care when you are deemed incapacitated. This includes whether to move you out of your home and into a nursing facility. So, again, choose carefully. A spouse or domestic partner is an obvious choice. It’s good to have a backup proxy in case you outlive your primary one. If you don’t have children, ask a trusted relative (sibling, cousin) or friend to fill the secondary role.
4. Write a Living Will
This document details what type of medical care you want in certain dire situations, mostly related to end-of-life treatment. This is where, for example, you will formally tell your medical proxy and doctors that you don’t want to linger on life support.
Writing a living will is similar to drafting a last will and testament, in that you need to understand the laws for these documents in your state. Once you've completed a living will make sure that you share copies with your doctors and the person you've named responsible for making health care decisions for you.
5. Plan For Long-Term Care
Long-term care facilities can become quite expensive if you need nursing care in retirement. It's possible to qualify for Medicaid to help pay for long-term care but you'll be required to spend down your assets first. You should consider the cost of long-term care carefully when calculating how much you need to save for retirement.
If you haven’t saved enough to cover that kind of expense you may want to get long-term care insurance for yourself and your spouse if you're married. Long-term care insurance can help pay the costs of health care since Medicare won't cover these expenses.
You may also consider a hybrid policy that includes both long-term care insurance life insurance coverage. This way, your long-term care costs are covered if you need it and you can leave a death benefit for a beneficiary if you don't require long-term care.
If you live in a larger home, consider whether you still need as much room in retirement, especially if it's just yourself. Also, think in terms of the cost of living in your current location and compare the cost of living in other places around the country. You may find that it makes more sense to a different city or state, or swap your large home for a tiny house as a cost-cutting measure for retirement.
While everyone should take these six steps in preparation for retirement, addressing these issues will provide an added peace of mind for those without the safety net that loving children can provide their aging parents.