I was offered this guest post by seasoned retirement planner Louis Mack. Since we’re working on our retirement plans for next year, I thought I’d share!
It’s never too early to start planning for retirement, but it can become too late to retire with a sustainable setup. The average person will procrastinate looking into retirement, making other tasks a priority, until 65 has come well into view.
The sooner you start putting money away for retirement, the better off you will be. A good rule of thumb to follow is to have 1.5 times your annual salary saved for retirement between the ages of 35 and 45, 3 times between the ages of 45 to 55, and 6 times your annual salary after 55.
Regardless of when you start, there are a number of tasks you should and will need to do before you can kick your feet back and enter retirement.
Everyone strives to be debt free but it is especially important to try and accomplish this so you aren’t stressed during your golden years.
Credit cards- Credit card rates are higher than the returns so pay them off as soon as possible so to avoid dealing with the unpleasant consequences of accumulated interest.
Mortgage- By paying off your mortgage before you retire, you will cut your expenses a significant amount but establish a home-equity line of credit beforehand so that your credit will have tax-deductible interest. As far as refinancing a mortgage or getting a HELOC, it is much easier to do when you still have a salary.
Eliminate car payments or any other large amenities that must be paid off.
Create a realistic retirement budget. It is important to do this because the budget you followed during your working years is much different than what you will be using during retirement. You should budget according to your guaranteed sources of income such as your Social Security and your pension.
To do this you can get help from a financial planner, a 401K counselor, or crunch your own numbers with a retirement calculator.
After figuring your monthly budget, tally up your essential living expenses and compare what you have to work with. If you come up short, you may have to either find cuts to make or dip into your savings. Tread carefully when using your savings though. According to Fidelity, the average person should use no more than 4% annually or risk depleting their assets.
Consolidate and simplify your funds and payments as much as possible before retirement. Juggling bills may make it more difficult to manage your budget so, to relieve yourself of these tedious monthly duties, set up as many automated transactions as possible. Have your Social Security and pension set up as direct deposit to avoid having to go to the bank to receive money. Have bills, like your phone, cable, internet, or insurance set up for monthly automatic payment so that no bill is late or missed.
The Cash Cushion
Separate from your retirement savings, you should have an emergency fund. This is a protective ‘cushion’ that could cover at least six months of expenses without having to dip into your savings. This is to take care of unexpected circumstances that tend to pop up when least desired. Whether it is for car repairs, pet accidents, or home repairs, this will help protect you in emergencies and remove as much unanticipated stress as possible. Don’t forget to replace your funds as they go.
To collect Social Security without any reduced benefits, you will need to apply three months prior to your 65th birthday. You can apply for Social Security as early as 61 years and 9 months, although there will be benefit deductions. If you are disabled, you are eligible to apply as early as 50 years of age. The options to collect Social Security can be quite complex so you may want to speak with aSocial Security representativebeforehand.
You’re former employer may provide retiree health insurance or you may be left on your own to fend for yourself. One way or another, health insurance after you retire is a necessity and something to think very seriously about.
If you plan to retire before the age of 65, you will not yet be eligible for Medicare so prepare to look into other available options. You will, of course, need to adjust and factor in health care costs into your budget.
With ever increasing life-spans, you may want to consider long-term-care insurance. Since most people’s children will be grown and on their own, if possible, convert any group plans to individual coverage so to cut any unnecessary spending. Make sure to review your different types of insurance every so often. You will want to ensure that you have the proper coverage to protect you, your family, or your assets in the event of accidents, illness, or death.
Time It Well
Believe it or not, there are better times to retire than others. Find out how much notice your company likes to have and which dates are good to retire on in order to maximize on benefits. Take advantage of any benefits that you may lose after retiring. For example, if you will lose dental, take care of any issues you may have at the dentist. Be sure to use up any vacation or sick time that you would otherwise lose with your company.
By completing this list, you will be able to glide into retirement in the most prepared state possible. So get started as soon as you can to help ensure you have a relaxing retirement.
Louis Mack is a seasoned retirement planner who has turned to writing to share the knowledge he has collected through many years of experience with a broader audience.
When he’s not writing about retirement, he’s more than likely casting a line somewhere.