Do you know everything that goes into planning for retirement?
How will you coordinate your various income streams? What will your expenses be? Are you prepared if you pass away or go into a nursing home?
We’ll explore the answers to these questions and many others in the following article.
FIgure out income strategy
In retirement, your income can come from a variety of sources. Social security, pensions (if you’re lucky), interest and dividends, retirement accounts, and employment.
What’s important is figuring out the income strategy that will result in the most monthly income without sacrificing the longevity of your retirement savings.
When to collect Social Security is a tough decision. On one hand, you want to delay taking it because your benefit will increase, but on the other hand, you truly don’t know how long you'll live for so you want to collect while you can, so why not receive early?
Your income during retirement is extremely important. You want to afford the lifestyle that you want, but you also have to make sure your money lasts as long as possible. It’s wise to talk to an expert.
Get out of debt
As we just discussed, you’re on a fixed income now so it’s important to cut costs where you can. Being debt-free can really relieve some pressure and might even allow you to take trips or do other things that you otherwise wouldn’t be able to do if you had debt.
For strategies on how to get out of debt, click here.
Create a retirement budget
Once you’ve figured out what your ideal income strategy is, it’s time to create a budget with your estimated retirement expenses.
You’ll want to over-estimate rather than under-estimate. If you think you’ll travel on a regular basis, whatever dollar amount you think is needed for that travel, include a little extra.
If you think your food budget will be low because you’ll eat the majority of your meals at home, add in a little room for eating out.
Compare your total (estimated) monthly expenses with your monthly income and see where you end up. Make adjustments to your spending as needed.
For more information about creating a budget, click here.
Added tip - Take this budget for a test drive. Make sure that a) it's doable and b) you are happy and comfortable with it.
Catch up on retirement savings
As you approach retirement, you should have fewer expenses. Again, I say should. If that is the case, you should have some extra money available that can be used to beef up your retirement savings.
After the age of 50, many retirement accounts (401k, Simple IRA, Traditional and Roth IRA, and others) allow you to contribute more than you have previously.
With a 401k, you’re allowed an additional $6,000. With a Simple, you’re allowed an extra $3,000. And with those IRAs, you’re allowed $1,000 more.
Figure out Medicare coverages
Bare bones Medicare is pretty cut and dry. Part A - the premiums are covered by the government and help with your hospital bills. Part B - the premiums are covered by you and help with your medical expenses, outside of the hospital.
There are additional coverage options, however. These are known as supplemental coverages. There are advantage plans, supplement plans, and prescription drug plans. Click the link for each to learn more.
At this point, your primary investment goal is to preserve what you have and not take unnecessary risks in hopes of a higher return. That's not to say that you can't be aggressive with a portion of your portfolio, it should just be a smaller portion.
If you want to learn more about investing in retirement, click here.
As grim as is it, the older you get, your risk of passing away increases. It’s important to have your estate plan up to date and ready in case you do pass away.
Make sure your will or trust has all of your properties and accounts in it. If you still have debt, make sure that’s included, as well as how that debt is to be paid off. Make sure your beneficiaries are up to date, as well.
You should also determine if your life insurance policies are updated and if you still need them. At this point, your expenses and debt should be much lower than they were when you were working. Paying for life insurance, especially after 60 can be very expensive, and if you're on a fixed income, it may be a good idea to get rid of those policies.
Last thing. Long-term care is usually pretty expensive as you get older, but it's fairly reasonable if you buy it early. This will cover some of your expenses if you wind up in an assisted living facility. It’s not in the cards for everyone, but it might not be a bad idea.
Figure out what you’ll do and where
Now that we’ve figured out the financials, it’s time to figure out how you are going to spend your time, and where you’ll spend that time.
Hobbies and rounds of golf will only get you so far. It’s a good idea to take on something else that’ll keep you active and let you interact with people. An active mind and a healthy social life are two key components to a happy, long retirement.
Different states have different rules. Some of those rules can benefit retirees. Florida, Arizona, and a handful of other states don't have income taxes. So if you're looking to save a little on taxes, those are some good options.
Retiring abroad also has its benefits. Many Central American countries have a lower cost of living, so you're retirement savings could go much further!
Declutter, organize, downsize
Getting rid of things you don’t use and other unnecessary items is a good way to reduce the amount of stuff you have, reduce the amount of stuff you have to clean, and also help you figure out if
Downsizing can be difficult, especially if the home you are leaving is where you have many happy memories. It can be a very efficient way of lowering your costs, however.
Additionally, as you get older, it’ll become increasingly difficult for you to keep up with the housework. Having a smaller space to tend to can help immensely.
It’s also a good idea to organize your documents, accounts, and passwords. It makes it easier for you to keep track of things, but it also helps your heirs when they inevitably have to handle your estate.
Almost everyone looks forward to retirement. It’s your chance to relax and do whatever your heart desires, but there are a lot of things to consider and many things that need to get before you take the plunge.