As you get closer to retirement age, you may be inclined to wait until you relinquish some responsibilities at your company before planning. However, failing to plan well in advance can leave you with additional expenses or insufficient income to live the lifestyle you’ve envisioned. If you are getting ready for retirement, discover what steps you should take during the pre-retirement stage to ensure you have enough resources to last through the rest of your lifetime.
1. Determine Your Retirement Income and Expenses
Understanding your income is vital to the retirement planning process because it shows how much money you need to last your entire life. Besides business income, your retirement revenue may come from investments, pensions, savings, and social security. If your existing plan is not realistic, make the necessary adjustments to ensure you have enough resources for retirement, such as deferring social security payments.
Once you’ve established your projected income, look at your current expenses. If you cannot support your desired lifestyle based on your estimation, figure out how to mitigate discretionary spending. Consider the costs that may be higher in retirement, such as healthcare and travel, as well as the expenses that may be lower, such as clothing and transportation.
2. Decide Where You Will Live
Where will you live when you retire? If you plan to relocate, consider how this choice will impact your retirement finances. Moving to a state with lower taxes or downsizing to a house or condo that’s easier to manage can help decrease your expenses significantly.
Of course, the cost is not the only factor involved with moving. A city’s natural and social environment or proximity to extended family, for example, may make higher living expenses worth it. Either way, deciding where you will live before retirement helps you determine how much money you will need to save to achieve your goals.
3. Evaluate Your Future Healthcare Needs
Many people rely on Medicare to pay their healthcare expenses in retirement, but the service comes with some restrictions that can limit coverage. For one, Medicare is only available to those 65 and older. If you retire sooner, you will need separate insurance to cover medical costs. More importantly, Medicare typically only pays for routine care and may not pay for special or long-term medical expenses.
To ensure they have ample healthcare funds as they age, many people set up a tax-advantaged health savings account (HSA) and contribute as much to it as possible. The money in this account grows tax-free until retirement, providing coverage for some healthcare costs. You may also need to purchase long-term care insurance to help pay for home health aides and similar services. If you buy this coverage in the pre-retirement phase, premiums may be substantially lower.
4. Minimize Debt
Eliminating debt is another essential aspect when getting ready for retirement. One method for decreasing credit card debt is to pay for large purchases with cash. This step ensures you won’t take excessive interest payments with you into retirement.
Some people also choose to pay off their mortgage to reduce debt. However, this strategy is best for individuals with high-interest mortgages. As paying off your mortgage early can take money away from your retirement savings account and lead you to miss out on tax-deferred income, it may not make sense to do if you have a low rate.
5. Vary Your Investments
While getting retirement ready, many people stop investing in stocks to avoid risk. While there is value in this approach, you should still consider having a mix of investments in your portfolio. While diversification does not guarantee a profit or guard against market challenges, it can help you withstand economic setbacks and provide the financial security you need to enjoy your golden years.
6. Fully Utilize Your Retirement Accounts
In the years leading up to your retirement, try maximizing your contributions to various retirement plans. You may decide to merge similar IRAs into a single account or choose to put more money into your 401(k). If you have multiple 401(k) accounts, see if you can consolidate them. You may also be allowed to make catch-up contributions on your retirement accounts if you are at age 50 or older.
Receive Retirement Planning Guidance Today
What is your retirement plan? If you are nearing the end of a long, rewarding career, you must have a strategy in place that accounts for your anticipated income, expenses, and lifestyle needs. To prepare for retirement, seek assistance from the team of certified financial planners at Park Place Financial.
We use a well-designed process to make the most informed suggestions and help high-net-worth individuals accomplish their financial objectives. Regardless of your vision for the future, we are here to help you through each step of the pre-retirement planning phase. Request a free financial assessment today for help with your retirement lifestyle planning goals.