Deciding when to retire is difficult. On the one hand, you want the vitality you need to accomplish dreams. On the other hand, you want to be financially secure for the long haul. All of the following items have the ability to significantly impact your retirement livelihood. Using our retirement readiness checklist helps you make an informed and confident decision about when to retire.
[Related: Early Retirement: A Comprehensive Guide]
1. Gauge Your Total Assets vs. Liabilities
The first thing you should do is assess your current financial standing. Take stock of your income, savings, insurance policies, debts and other liabilities, vehicles, and valuable possessions. Maintain a working document of your financial situation that reflects changes as they come.
Now that you have an accurate assessment of your finances, you can adjust how aggressive you will be in setting up retirement savings.
2. Create a Dedicated Emergency Fund
Hopefully you already know how important an emergency fund is to your financial wellbeing. Ideally, you should have as much as one year’s expenses saved up, including expenses that are currently paid by your employer.
If saving a year’s expenses seems too daunting, many agree that saving at least six months’ expenses should have you covered. Notice we said expenses and not income. This fund needs to cover what you will be spending in the event of an emergency.
3. Pay Off All Debt
Entering retirement with substantial debt is impractical. Therefore, you should work to pay off all debts before you retire, so that they don’t take up a large share of your retirement income. Do this by first accounting for each debt, noting the interest rates and terms.
If possible, start by paying down debts with the highest interest rates. In order to be effective, you will have to pay more than the monthly minimum. If you cannot handle paying the high interest debts initially, you can pay the smallest debts first. Mortgages generally have low interest rates, so reserve paying this off last.
4. Calculate Your Retirement Income Needs
Factors you need to account for are: where you plan to live, whether you plan to have part-time work, expenses, and the length of your retirement. Many retirees are living long lives, which is fantastic, but needs to be accounted for when saving.
Also, you need to track when certain incomes begin. Look at your pensions, IRAs, Social Security, and employee-sponsored retirement accounts. Keep in mind that these will be taxed to some degree, so you’ll want to consider them in that light. Be realistic, and consider hiring a financial advisor to check the viability of your plan.
[Related: Surprises of Retirement Income Planning]
5. Nail Down Health Insurance
Health insurance can be a significant financial burden for those who aren’t prepared. Luckily, if you retire after the age of 65, Medicare will likely provide what you need. However, you’ll still probably want to look into supplemental plans. Review Medicare plans to identify any significant gaps in coverage for your situation.
If you’re planning on retiring early, you will need to take care of your health insurance needs without Medicare. You will need to check coverages carefully when buying health insurance on your own. Make sure to account for premiums, co-pays, deductibles, and other out-of-pocket expenses when identifying the financial needs for healthcare.
6. Finish Estate Planning
Estate planning ensures that you will not become a financial burden on your loved ones after you pass. Facing one’s mortality is difficult but worth it in the long haul. For one thing, you can decide where your assets are distributed.
Create a will and power of attorney. Also, you should designate a person to make important decisions should you become incapacitated. Make sure that you name beneficiaries for your retirement accounts, insurance policies, and assets that you may share with others. Take into account tax burdens that may arise.
Get all documents notarized and stored safely. You will also want to create a document that includes digital passwords and the personal information your executor will need, such as your date of birth, Social Security number, and account numbers. Review this information annually and/or after significant life events.
7. Consider Your Retirement Investment Options
Retirees often fail to consider investment opportunities post-retirement. And while you may be unwilling to take as many risks now that your income is more fixed, that doesn’t mean that you should rule out investing altogether.
Consider annuities, closed-end funds, dividend income funds, retirement income mutual funds, and other options. After some careful investigation, you may decide that these options can work to your benefit.
8. Get Knowledgeable About Withdrawing from Retirement Accounts
Depending on your age and when you need particular income streams, you will want to decide where to withdrawal based on what preserves your income best. For instance, although you can apply for Social Security at age 62, waiting until age 65 will allow you to claim your full benefits. Waiting until even later will increase the amount of your check.
Similarly, you will want to look into whether it’s a good idea to roll your employer-sponsored retirement accounts into IRAs. In addition, most plans force Required Minimum Distribution (RMD) at the age of 70 ½. Contact the company that handles your account to determine their withdrawal rules.
The Power of the Retirement Readiness Checklist
While the age of retirement is certainly variable, your readiness should not be determined by age or amount of retirement savings alone. Our retirement readiness checklist allows you to make sure all facets of your retirement are accounted for. If you desire expert advice regarding your retirement readiness, contact Blisk Financial Group today.