[ad_1]
It pays to do your retirement homework.
The period when you transition into retirement is one of the most critical times of your life. It’s comparable in importance to the period when you transitioned into adulthood, roughly between ages 20 and 30. Think about it: Your decisions during that time put your life on a course with implications that have likely lasted to this day.
Keep this in mind as you decide how much time and effort you want to spend on planning ahead as you transition into retirement, which is roughly between ages 60 and 70 for most people. Your decisions during this time will impact your quality of life for the next 20 to 30 years.
Before you make any key choices, however, you’ll want to do some homework that will provide the information and insights you need to make the best possible decisions.
Let’s start with these:
Focus on the big questions
Here are the most important questions and decisions to focus on:
- When will you retire from your current job, and will you work part time for a few years after you retire?
- Do you have sufficient retirement income to support the life you want?
- Are you adequately prepared for common risks during a long retirement, including paying for health care, inflation, and stock market crashes?
- Where is the best place for you to live after you’re retired?
Of course, there are many more important decisions you’ll need to make, but start with these before adding any others to the list.
Prepare for your planning
To help you answer the big questions noted above, think about your goals for the life you want in retirement. Ask yourself the who-what-when-where-why of retirement:
- Who do you want to spend time with?
- What do you want to do during retirement?
- When would you like to retire?
- Where do you want to live that will best support the life you want?
- Why do you want to retire? List both the positive advantages you expect from retirement and the negative things you don’t like about working.
If you’re married or living with a partner, you’ll want to discuss these questions with them and involve them in the most important decisions.
Take Inventory
You’ll also want to take inventory of all your financial resources, including these:
- The amounts in your retirement savings
- Your expected Social Security retirement income at the age you want to retire. Be sure to determine how these benefits might increase if you delay starting benefits to a later age.
- The amount of any pension income, if applicable
- Your home equity, if applicable
- Any other assets or income that might help support your life in retirement, such as whole life insurance, income from a business or part-time work, or income from rental properties
You’ll also want to prepare an inventory of any debts you have, such as from a mortgage, credit cards, or student loans.
While you’re taking inventory, you’ll also want to locate and store critical documents, such as descriptions of your retirement and savings plans from your employer, medical insurance policies, whole life insurance policies, loan documents, and any other documents that describe your benefits and your rights.
Prepare a retirement budget
You’ll also want to prepare a budget of the regular monthly expenses you expect to have in retirement, including your mortgage payment or monthly rent; transportation costs, including gas and car insurance; food; utilities; premiums for medical insurance; and entertainment.
When preparing your budget for your regular monthly expenses, be aware that premiums for medical expenses and out-of-pocket medical costs are items that can change significantly when you retire. Before you’re eligible for Medicare at age 65, you might pay very high premiums for medical insurance. Once you’re eligible for Medicare, you’ll need to investigate your plan options carefully before you choose which plan to go with. The premiums and out-of-pocket expenses for Medicare, a Medicare Supplement Plan if applicable, and a prescription drug plan can be significant, so you’ll need to understand these amounts when you’re preparing your retirement budget.
You’ll also want to inventory the expenses that you don’t incur on a monthly basis, such as property taxes and homeowner’s insurance.
The ultimate goal
The ultimate goal of your homework is to help you understand whether you can satisfy the “magic formula” for retirement security for the rest of your life:
I > E, or
Income greater than expenses
Actually, this formula isn’t really magic—it’s just common sense.
It’s likely you’ll need to spend a lot of time completing your retirement homework, but it’s well worth the effort considering what’s at stake.
[ad_2]
Source link
