Several years in advance of your actual retirement, you can take some retirement readiness steps to prepare and allow yourself to enjoy this milestone without the anxiety of the unknown. So grab the sunscreen and take a bit of a retirement test drive.
While it is true that some of your current expenses will be less in retirement, putting pencil to paper will give you a better idea of the true difference. Creating a retirement budget and living with it may encourage you to set aside more money, alter the age you plan to retire and prevent any surprises. Also, if you have a travel bucket list, a budget will help make sure your plans align with your retirement income.
Pay off your highest-interest rate debt first, usually credit cards followed by car loans. If you have a mortgage, talk to your financial advisor to determine if it should be paid off pre-retirement or if there are refinancing options. You may not qualify for refinancing after retirement due to reduced income. Other options to consider are downsizing to a less expensive and easier-to-maintain home or moving to a less expensive state.
Term life insurance is expensive when you get older, and it may no longer be necessary for income replacement when you are retired. You may, however, want to investigate long-term care insurance, which is less expensive to purchase in your 50s than if you wait until later.
Start educating yourself about Social Security at the Social Security Administration’s website. Use the online tools to determine your estimated benefit amount and understand when to start claiming. These decisions can be complicated depending on your life circumstances, and it may be a good topic of conversation for you and your financial advisor. Read our related article, “How Social Security Fits Into Your Retirement Plan.”
If you plan to retire early, will you need an individual health insurance policy until you turn 65? When Medicare begins, will you purchase a supplemental policy? What would it cost?
Is your allocation of equities to fixed income still appropriate or is it time to start shifting some assets? Read my colleague Travis Boyer’s article “Adjusting Your Portfolio Allocation Ahead Of Retirement.” Do you need additional liquid assets to cover moving expenses or home repairs? Would consolidating retirement accounts make life less complicated and do you understand which accounts will require a yearly required minimum distribution (RMD)?
Think about how you want to use that hard-earned free time. Do you plan to work part-time at something you enjoy or volunteer? Prior to retirement, try a few of the options you’re considering; start building skills and a network of contacts. Staying involved is good for your health as well as your pocketbook and it prevents you from spending money out of boredom. Retail therapy may not be the best retirement plan for you!
It requires careful financial planning and tax planning expertise to determine how much to draw from your retirement savings each year so that they last for your lifetime and which account — taxable or nontaxable — is best to use for distributions. This is why you have a Parsec team. Don’t wait until you are already retired to have a planning conversation!
I hope this retirement readiness plan helps set you up for a successful and enjoyable retirement!