The concept of retirement used to be pretty simple: stop working and start playing.
But today, retirement is less about retiring from work and more about entering a new phase of life. With some thoughtful planning, your retirement years can be even more enjoyable and fulfilling than what came before them. Of course, financial planning is a very important part of preparing for retirement. But it’s also important to envision your future. When you know exactly what you want to do in retirement, it will help you determine how much you need to save for it. Here are six tips to help you make a smooth transition into retirement:
Imagine your ideal retirement life.
How would you like to spend your days? Traveling the world? Playing golf? Working part-time for a cause that’s near and dear to your heart? Start by writing down your ideas. Once you have a good picture of your ideal day-to-day life, you can begin to estimate what it might cost and the resources you’ll need to support it.
Develop a budget.
Figuring out how much you’ll need in retirement is often the most difficult question. Create a budget to determine how much income you’ll have and whether you’ll be able to afford the retirement lifestyle you want. This exercise can also help you to decide if you can afford to retire early or if waiting would be a better option. Retirement generally means your savings will stop and you’ll start relying on them to generate income. You’ll need to figure out how much monthly income your nest egg will produce and how long it will last. Get a handle on how you spend your money now, considering major categories like your mortgage, utilities, clothing, groceries, dining out, and transportation. Then, look at what will change after you retire, eliminating work-related costs while adding new expenses, such as travel and recreation.
Communicate with your spouse or partner.Far too many couples have unvoiced concerns or divergent goals that they don’t discover until they retire. You’ll be living together 24/7 so it’s wise to be sure you’re on the same page. For example, will you keep your current residence or will you move and possibly downsize? How on-track is your partner for his or her retirement? How will you handle adult children’s monetary requests/needs on a fixed income? Discussing your plans and goals in advance will help ease retirement stress for both of you.
Decide when you’ll sign up for Social Security.You don't have to sign up for Social Security immediately upon retiring. Your monthly payments increase for each year you delay signing up between the ages of 62 and 70, so if you’re fairly healthy and longevity runs in your family, try to hold off as long as possible. If you have health problems, you may decide to take your benefits sooner rather than later.
Avoid Gaps in health insuranceWhen the coverage through your former job ends, you need to have new health insurance coverage lined up to start the next day. You can begin Medicare coverage as early as the first day of the month you turn age 65 if you sign up during the three-month period leading up to your 65th birthday. If you retire before age 65, you will need to find another form of health insurance. That may be retiree health insurance funded by your previous employer, COBRA coverage, or a health plan purchased through your state's health insurance exchange. Be cautious about relying on your employer's promise to provide health care benefits once you retire. More and more companies are reducing or rescinding health insurance benefits once promised to their retirees.
Review your company benefits in retirement.In addition to health insurance that you might continue to receive through your former employer, you’ll also need to consider other benefits, such as: payout of your vacation and sick time, whether to receive your pension as a lump sum or a monthly payment, designating your pension beneficiary, and whether to keep your 401(K) or roll it over into an IRA.
To prepare properly for retirement, you should start getting ready at least five years before the big date. It’s all about envisioning the lifestyle you want while making sure you’ll have enough reliable income to fund it. Careful planning will help you sail through the transition and slide into a fulfilling and comfortable retirement.
In Part II of our series about transitioning into retirement, we’ll take a closer look at Medicare coverage and provide helpful strategies for making the best choices. To learn more or to get started on your personal financial plan, please contact us today.