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These six decisions will significantly impact your quality of life in retirement.
Planning for a successful retirement involves much more than just deciding when to stop working and then planning for fun and travel. You’re transitioning into a phase of your life that could last another 20 to 30 years. The decisions you make during your retirement transition zone—typically between ages 60 and 70—will affect your quality of life for the rest of your life.
When you think about it, these decisions are just as important as the key life decisions you made between ages 20 and 30, when you transitioned from childhood and formal education into the adult world. During those years, you probably made such important life decisions such as when to finish your formal education, the type of work you wanted to pursue, where you’d like to live, whether you want to get married or find a life partner, whether you should start a family, and how you’d form your social network.
These earlier decisions put you on a path that is likely to last or has lasted until your next critical transition period—planning your retirement. Now you face another series of life-changing decisions that will affect the rest of your life.
To help you successfully move to the next phase of your life, let’s look at the six most important decisions you’ll need to make during your retirement transition zone.
Decision #1: When and how to retire
There’s no doubt about it: The longer you wait to retire, start your Social Security benefits, and tap into your savings, the higher your eventual retirement income will be. For example, if you wait to retire at age 70, your retirement income could be nearly twice the amount it would have been if you’re retired at age 62.
For some people, waiting to retire until age 70 might seem like a very long time. But you don’t have to work full time while you wait for your 70th birthday. It’s possible you could work part time for a while, which would give you more time to travel and pursue your interests. The goal would be to earn enough money to cover your living expenses so you could allow your Social Security benefits and savings to continue to grow until age 70.
Before you pull the trigger and retire, be sure to estimate your retirement income from all available sources and determine how they might increase if you delay retirement, even if it’s just for a few years.
Decision #2: How to meet the common-sense formula for financial security
Here’s the common-sense formula for financial security in retirement:
I > E, or income greater than living expenses
You’ll want to make sure you can satisfy this formula for the rest of your life. Most peoples’ retirement income will be much less than the income they earned during their working years. If this describes your situation, you’ll want to closely examine your living expenses to see if your retirement income can cover these expenses for the rest of your life. If your income falls short, you’ll need to look for ways to increase your income and reduce your living expenses.
Decision #3: Where to live
For most retirees, housing is still their highest living expense. If you need to reduce your living expenses to match reduced retirement income, housing might be your largest target. You can create a win-win solution by looking for a community and house that might better meet your needs in retirement.
For instance, that large home in the suburbs might have been a good place to raise a family or commute to work. In your retirement years, however, that house might be too expensive and time-consuming to maintain, too large for your needs, or too isolating. You might want to consider a location, community, and home that better fits this next phase of your life.
Decision #4: How to recreate your social portfolio
Enjoying activities with family and friends is an important source of happiness for most retirees, and recent research demonstrates it’s also critical for your health. Many people met friends through work or as they raised their family. But in retirement, those built-in sources of friends often dry up. As a result, you might need to be more proactive and creative when it comes to building your social network.
Decision #5: How to improve your health
Good health is often cited as an important source of happiness in retirement; keeping healthy also has the potential to reduce your medical bills. Unfortunately, research from the Stanford Center on Longevity indicates that many Americans don’t meet ideal health goals in three critical areas: sufficient exercise, healthy nutrition, and adequate sleep. Hopefully you’ll have more free time in retirement to make changes that help you achieve better outcomes in these three areas.
Decision #6: How to obtain adequate health insurance
If you retire before age 65, you’ll want to buy health insurance that covers you until you’re eligible for Medicare at age 65. But that can be very expensive, so you’ll want to be sure to estimate the amount of your premiums and your out-of-pocket expenses, to factor into your retirement budget.
When you do transition into Medicare, typically at age 65, you face a critical choice:
- Traditional Medicare with a Medicare Supplement Plan and a Part D prescription drug insurance policy, or
- Medicare Advantage Plan, a package policy that usually includes prescription drug coverage.
There are pros and cons to each choice, so do your homework to investigate your options carefully before making any decisions.
While there are other decisions you need to make during the critical retirement decision zone, the above list is a good place to start your planning.
And you don’t need to make these decisions all at once. Ideally, you’d give yourself plenty of time by starting your investigations well before your retirement. However, once you reach age 60, you should start seriously planning, if you haven’t already.
Fortunately, you have much more life experience now that will help you make these retirement decisions, compared to the life decisions you made between ages 20 and 30. By now, you’re more aware of what can help make you happy and healthy for the rest of your life. Be sure to carefully consider that as you move on to this next phase of life.
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