Retirement is one of the last milestones we’re going to experience in life. Just like marriage and having your first baby, many people believe that the amount of preparation that goes before this event is correlated to the happiness they’ll experience during this phase of their life.
If you’ve prepared well for your retirement, you’ll find yourself feeling relaxed during the rest of your non-working days. If not, you may struggle and work a few more years past retirement age just to save enough money to accommodate your planned lifestyle.
The question is: can you afford to retire right now?
How should you spend your last five years of work before you decide to retire?
1. Envision The Kind of Retirement You Want
The first step to planning a successful retirement is through asking yourself the kind of lifestyle you hope to enjoy during those years. Do you want to spend your retirement travelling to different places and meeting new people? Are you thinking of starting a business or volunteering to a cause you’ve always supported? Perhaps you just want to stay as close to your family in order to see your grandchildren?
Whatever you want, picture it, and ask yourself: Do I have the financial resources for this kind of lifestyle If not, is it possible to work for it right now and build a plan for it later on?
2. Find Out How Much Money You Need to Retire
After envisioning the kind of lifestyle you want during retirement, estimate how much money you’ll need during your post-work life. Hopefully, you’ve kept a generous amount of savings in your IRA or 401(k). According to experts, the “comfortable” retirement savings for singles and couples should be around $545,000 and $640,000 respectively.
Do you have this much amount?
How much of your current income should you save to fund it?
How many years will it take you to still keep working for it?
3. Analyze Income Sources after Retirement
Retirement is often seen as a time for rest and relaxation so you may want to have a bit of income to fund all your splurges. Before deciding to retire, plan and compute all the money you’ll get after retirement. Take into account your annuities, social security, and employer pension. Also include real estate funds and royalties you earn from published books.
What predictable income sources will you have during retirement?
Do you have assets you can sell later to fund your retirement?
Can it support the retirement lifestyle you envision?
4. Create Your Own Retirement Budget
If you’ve been diligently following a budget during your working years, a retirement budget probably won’t be too difficult for you. However, you may find that retirement budgets are a little more challenging. Once you stop working, your expenses can either go up or down depending on the kind of lifestyle you are going for. You will save money on things like commuting and transportation but you may find yourself spending more money on leisure since you’ll have plenty of free time. Mapping out your budget ensures that you don’t overspend or underspend during retirement.
5. Plan Your Medical Costs
Health care expenses are one of the most expensive things you’ll have to deal with during retirement. According to studies, the average 65 year old man can spend around $189,687 on medical care throughout his retirement while a 65 year old woman can spend around $214,565. You know what’s worse? These numbers don’t even account for long-term care which more than 70% of seniors over 65 actually need.
If you want to keep your retirement money to fund your lifestyle and not your hospital bills, consider buying long term care insurance now. Most long-term care insurances can help you cover nursing-home care as well as assisted living facilities or at-home assistance services you may need. Insurance will keep your expenses in check and will allow you to save more money for things you want to do during retirement.
6. Save More Than What You Plan For
There’s no telling what the future can bring so make sure you’re saving extra funds for retirement. The best time to start planning for retirement is today and not a few years before you decide to quit working. Your retirement saving should also include emergency funds—this is money for unplanned expenses in retirement. In this way, you don’t have to take money from your savings or find yourself loaning more money while in retirement.
You can earn more money today by exploring passive income streams such as buying and renting out properties. You can also save more by contributing more money to your 401(k). Your financial circumstances today are important but planning for the future will ultimately make you less anxious and more ready and relaxed during retirement.
7. Pay Off Your Debts
It’s never wise to be having debt over the age of 60. People who are on the verge of retirement should have as little debt as possible. Once you retire, you’ll be living on your retirement fund and debts mean higher monthly payments which can easily increase your expenses during retirement. In other words, debt can impact your retirement lifestyle and the sooner you get rid of debt, the happier you will be.
So if you’re still paying off your home, make extra mortgage payments now. If you have credit card debt, prioritize paying them off today. Make an effort to have fewer payments during retirement. If it looks like you’ll retire with debt, consider the amount in your overall plan. Try to incorporate your debt into your budget.
7. Talk With a Financial Advisor
Not sure how you should manage your finances during retirement. Talk to an expert. A financial advisor can talk you through your available options during these last five years of your work life. He can advise whether or not you need to do extra measures to get financial security during retirement. An advisor can also help you make smart decisions that will help you avoid common financial mistakes before you retire. Your advisor can also give you strategies for claiming your benefits so that you get the full amount of what you’re entitled to receive.