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How to Prepare for Retirement

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Retiring is an exciting time in our lives. We have the freedom to spend our retirement activity time however we want – whether playing with the grandkids every day or road tripping in an RV. We should take some actions to ensure we have the retirement funds necessary to retire with financial security.

Start Your Retirement Planning

Saving for retirement should start as soon as possible, even if you can’t max out your contributions. If you have an employer who offers a 401k investment, be sure to take advantage of it. Try to contribute 8 to 12 percent of your salary to start your retirement planning. Otherwise, at least match the 401k investment contribution that your employer provides.

Steps to a Retirement Budget

Before creating your budget, gather the following documents:

  • Tax returns from last year
  • Last two pay stubs, if you or your spouse is still employed
  • Last six to twelve months of credit card statements
  • Last six to twelve months of bank statements.

Budget Your Fixed Expenses

With these documents on hand, figure out what your fixed monthly expenses are. Put them into the following categories:

  • Essential spending – Food, housing, utilities, health care, transportation, etc.
  • Non-essential spending – Cable TV, streaming services, cell phone plans, and other subscriptions
  • Required expenses – These are expenses that don’t happen every month like insurance premiums and property taxes

Health Care Costs

After you retire, you won’t have an employer to help pay for your health insurance premiums. Medicare doesn’t kick in until you are at least 65 years old. Start shopping for plans to get an idea of how much more that will add to your monthly expenses. Dental, vision, hearing care, and medication are also other expenses to estimate how much you need saving for retirement.

Financial Planning for Retirement

It’s also time to become clear on your retirement needs. Decide whether you will downgrade your home, move to another state, and the other aspects of your retirement lifestyle. Prepare a retirement budget and calculate if you have enough saved to retire on.

Figure out your investments, how they will contribute to your retirement, and how long your savings will last. Always plan for emergencies to be safe, but it could be a good idea to meet with a financial planner to make sure your financial planning and affairs are in order for you to retire comfortably.

Saving for Retirement

Checking in on where you are at in your retirement planning becomes more important the older you get. Review your retirement savings once a year to decide if your asset allocation makes sense for the age that you’re at.

Once you reach 50 or older, you can take advantage of catch-up contributions. These are higher annual contribution limits set by the IRS for 401ks and individual retirement accounts (IRAs). If you can afford to invest in these catch-up contributions, it is good to do so.

Deciding Your Retirement Lifestyle

A big determinant of how much money you’ll need to retire is what lifestyle you intend to have. Living in a luxury golf community versus staying in the home that you’ve paid off have sizable differences in cost. Your retirement lifestyle goals may change over time too. As you check your retirement funds annually, it’s a good idea to put some thought towards if you still have the same goals or if they’ve shifted.

  • International Travelers – Taking a trip or more a year to a new destination.
  • Beach living – Waking up every morning for a walk on the beach then watch the sunset over the water
  • Golf course – living in a community where you make new friends and get to play golf
  • Back to school – Taking classes or getting a degree in a subject that always interested you
  • Staying at home – Take it easy by staying where you are in the home you have lived in for years.

Differences Between Your Current Lifestyle and Retirement

It’s vital to think about how your current lifestyle and the one you want in retirement are different. That plays into how you can financially prepare for retirement. With careful planning that starts as soon as possible, it’s realistic to achieve that lifestyle, especially if you want to keep what you currently have.

Determining When to Retire

The typical retirement age is considered 65 in part because of the rules around Social Security benefits. We all know that we can’t rely on Social Security alone as an income source in retirement. Here are some key milestones to consider to help decide when to retire:

  • Age 55 – If you leave your job or retire, you can withdraw from retirement savings plan without penalty
  • Age 59 ½ – Depending on the plan, you can withdraw from qualified plans/IRAs without penalties
  • Age 62 – Can begin collecting Social Security
  • Age 65 – Medicare coverage can begin
  • Age 66-67 – Depending on when you were born, you have reached Social Security full retirement age
  • Age 70 – This is the latest age you can start receiving Social Security benefits
  • Age 72 – Must take required minimum distributions (RMDs) from retirement plans

Retirement Preparation

Before you get to enjoy your daily retirement activity of not going into the office, you have some prep work. Here is a checklist of retirement preparation activities to complete to ensure a successful retirement:

  1. Reinforce your emergency fund savings account – The unexpected will undoubtedly happen, so have an extra financial cushion.
  2. Create a retirement budget – Analyze your retirement expenses and come up with an accurate estimate of your spending and monthly income. One of the biggest retirement mistakes that people make is underestimating their expenses.
  3. Research your health care options – Medical expenses are expensive, so make you include these costs in your budget. Look at what your health insurance options are and decide which ones to elect.
  4. Make an income timeline and run scenarios using an online calculator – Make sure you know all the sources of your retirement income and how they stack up against your expected expenses. It will help manage your cashflow. Use a retirement calculator to see how long your money will last with different decisions like retirement age and rate of return.

Retirement Planning for Your Family

As you get closer to retiring, you should start phasing out any financial support you’ve been covering for your kids. The family savings account of your bank account has to end before you retire. It includes things like cell phones, cable bills, and paying back loans. The money you have used to invest for retirement isn’t meant to assist your kids.

As you start preparing for retirement, you should disclose your estate plan. Discussing who will inherit what can help avoid confusion. Sibling rivalry that occurs during a very emotional time as death can destroy those relationships. It’s not uncommon for the child that does the most care taking also to receive the most inheritance.

Prepare and Share the Documents

Estate planning documents should be prepared in advance of retirement. These will identify health care directives, durable power of attorney, and other important topics should you become incapacitated.

Using Retirement Plan Services

Managing your retirement savings is valuable, especially if you don’t have the time to do it yourself. But they can do so much more than getting you on the best retirement plans. Retirement plan services can offer you sound retirement advice on many topics, including preparing your family for your next life stage.

Retirement Tips

Do you think you might be coming up short on retirement money? Here are some retirement tips that could help:

  • Get healthy – Health care costs are expensive. Focusing on your physical health now can provide preventative care to reduce the doctor visits and medications that you’ll have to deal with later.
  • Hire an investment expert – An investment professional is an expert in their trade, just like a doctor is in medicine. They are a great resource for advice and can you run the numbers.
  • Work for a few more years – Delaying retirement will give you a few more years to boost your retirement funds significantly.
  • Eliminate your debt – If a good portion of your retirement money is allocated towards debt, get them paid off before retiring. These retirement tips will free up your fixed income, not to mention save you money on interest expenses.

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