Tips for Financially Preparing to Retire

How to Financially Prepare for Retirement

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Carefully planning the financial aspects of your retirement can increase the chances that you will have the resources to sustain yourself during your retirement years. Any good financial plan should take into account both your anticipated income and your expected expenses.  

The following tips will help you gather the information necessary to make timely and informed decisions about your retirement.

 

14 Tips for Financially Preparing to Retire

1. Consider how you will cover health care expenses in retirement. Some lucky employees will have part or all of their healthcare coverage through their employer or union. Others won’t.

Meet with a Human Resources representative or union representative at your organization to learn about any coverage provided for retirees and the cost to obtain that coverage. Find out eligibility requirements and whether the coverage will extend to family members.

2. In addition to learning about obtaining possible healthcare coverage from your employer, secure estimates from providers about the cost of additional health care coverages. Research costs associated with Medicare, too. You don’t want to experience any surprises that can quickly overspend your budget when you plan your retirement expenses.

3. Research the costs and assess the suitability of long-term care insurance.

 Consult a trustworthy financial advisor for input about long-term care insurance. Choose an advisor who will not receive a commission for selling you a plan.

This insurance is advised because long term illness or aging can eat away at your retirement budget quickly, especially if you stay in assisted living.

But the costs of and the coverage provided by different plans vary widely.

4. Assess your goals for your retirement pursuits. Seek the assistance of counselors if you need help clarifying your values and interests. Depending on how you plan to spend your retirement years, the cost of these activities can raise the amount of money you need to have saved for retirement significantly.

It is also essential when you think about retiring that you have interests and hobbies you’d like to pursue. When you stop working, you obtain significant amounts of time back. For example, a friend who is a successful business owner with many employees looks forward to his retirement when he will have more time to bake bread, practice photography, read, watch silly YouTube videos and target shoot.

5. Track your current living expenses. Get a realistic picture of what you'll need in retirement by monitoring what you spend today. Factor in any decreases in expenses you will experience such as the costs of commuting, your work wardrobe, and any other job-related expenses.

At the same time, don’t become cost foolish. You will want to plan for additional expenses for travel, eating out, hobbies, athletic activities and other retirement interests and pursuits as well as any healthcare coverage.

6. Estimate how much income you will need to sustain your current lifestyle.  Make sure you incorporate an inflation factor to account for cost increases over time.

Financial experts typically recommend that you plan to spend at least 85 percent of your current income when you set your target for saving. Online retirement calculators can help you to tailor these calculations to your personal situation.

Keep in mind, though, that the amount of money you spend in retirement may actually increase if your time and energy has focused on working. Traveling, playing golf four times a week, buying a second home, or a home in a southern state can add significantly to your budget requirements.

It’s key in planning and budgeting for retirement to know yourself, your interests, and how you plan to spend your time.

7. Consider whether or not you want to work in retirement.  Meet with a career counselor to assess options and gain assistance with estimating associated income if you do plan to work.  Surveys indicate that part-time work or pursuing a second career in line with a retiree's passions can enhance satisfaction in retirement.

Some careers transition more easily than others into retirement. Freelance writers, for example, may never stop writing, just take on less work. Healthcare professionals can work one day a week.

8. For those who are many years from retirement, make sure you start contributing to retirement plans as soon as possible to allow for the power of compounding. The earlier you start contributing the better.

Check with your employer, too, as many employers partially match the funds that employees save for retirement. You will want to take advantage of the match for as many years as possible.

9. Set aside as much income as possible on each pay day to build the largest possible retirement nest egg. It’s an age-old adage, but paying yourself first is smart retirement planning.

10. To clarify any questions about payments for unused time off or other retirement incentives, especially as you begin to think about retiring, meet with your Human Resources staff. Some organizations offer incentives to employees when people retire early.

You will want to take advantage of anything that your employer offers if it makes financial sense for you. Stay in touch with what your employer’s offering as early retirement options usually have a limited time frame before they expire.

11. Meet with representatives of your pension, 401(k) or 403(b) providers for information about options for distribution and estimates of your expected income streams from your investments.

12. Unless you are very savvy about investments, meet with a financial advisor to explore a mix of assets appropriate for your age, projected retirement date, and risk tolerance.  Advisors who charge a reasonable fee for a consultation are often more objective than advisors compensated by commissions based on your investment choices.  Representatives from broad-based investment firms managing your companies 401(k) or 403(b) plans can offer valuable advice about asset allocation.

13. If you hold a significant portion of your portfolio in your company's stock, consider diversifying especially as you approach retirement. You will not want a large portion of your retirement savings tied up in one investment.

14. Estimate your Social Security income and explore options for timing the start of payments. Consult the SSA calculator to estimate the payments you will receive from Social Security.

You can retire with the money that you need to pay for a long and happy life. Starting as early as possible is key. These are fourteen of the steps you really don’t want to skip doing on that journey to your eventual retirement.