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Dreaming of handing in your job offer and joining the ranks of retirees?
Retirement can be wonderful—if you’re ready for it. Therefore, before ending your career, always make sure you are 100% ready.
Do not know what to do? Taking these five steps can put you on the path to a happy, secure retirement.
1. Coordinate with your spouse
If you’re one of the duo, retirement won’t just affect you; This is a profound lifestyle change for your entire family. Before you take this step, come to an agreement with your spouse.
Will you both retire, or will your spouse work longer? If your spouse plans to maintain a career, will you end up taking on more household chores? Do you agree? These questions need to be answered.
You also have to consider how your decision will affect your family’s finances—especially when it comes to Social Security benefits. If you take Social Security benefits early, you will reduce the monthly benefits you receive for the rest of your life, as well as any survivor benefits your spouse may receive if he outlives you.
Before filing for benefits, work with your spouse to develop a Social Security filing strategy to maximize your combined income, since you won’t be able to easily change your plans once benefits begin.
2. Figure out where your income comes from
When you no longer receive a paycheck, you will need funds from other sources.
For most people, retirement income comes from Social Security and savings. A lucky few (mainly government workers) have defined benefit pension plans that provide a guaranteed income. For the rest of us, investing enough money to supplement Social Security is crucial.
To make sure you don’t fall short, add up all of your potential sources of retirement funding (including pensions, Social Security, and withdrawals from retirement accounts like 401(k)s and IRAs) and figure out what your total monthly income will be.
Estimate your Social Security income by visiting My Social Security to find your benefit amount at full retirement age. Once logged in, there’s a free retirement estimator to help you determine your benefits based on your retirement age. If you’re not ready to create an account, the SSA also offers a quick calculator that estimates benefits by entering your current-year income, date of birth, and future retirement date.
To determine how much income you will earn from your investments, you can use the 4% rule, which allows you to withdraw 4% of your account balance in the first year of retirement and then adjust that withdrawal amount each year for inflation. However, you could run out of money if you follow the 4% rule, so you may want to pursue another strategy, such as following the advice of experts at the Center for Retirement Research to determine what percentage of your account balance to withdraw each year.
When you add up your Social Security income, investment income, and any other funds you will receive, you can make an informed choice about whether it is feasible to live on the funds available to you.
3. Set a retirement budget and see if there are any gaps
So how do you know if your total income is enough to live on?
The best way to tell is to actually budget. Consider all fixed costs such as housing, taxes and insurance. Add up other expenses such as travel, clothing, personal care items, transportation, food and entertainment. And don’t forget to include savings: Just because you’re no longer investing for retirement doesn’t mean you don’t need to save money for other purposes, such as home repairs or emergencies.
Your budget will reveal how much money you actually need. If it shows you have enough income to cover all expenses, then you’re good to go and file your notice.
If not, decide whether to lower your retirement expectations or increase your retirement income by working longer, saving more, and earning delayed retirement credits to boost your Social Security benefits.
4. Create a health care plan
One of the most important items in your budget is medical expenses.
Seniors often suffer from serious medical conditions, and health insurance does not provide what most people consider comprehensive coverage. You’ll have to pay for a lot of prescriptions out of pocket; you’ll pay premiums and coinsurance; and you’ll need to pay out of pocket for care that’s not covered, such as nursing home services.
Recent estimates indicate that an elderly couple with the highest rates of prescription drug use would need $370,000 to be reasonably certain to meet their retirement health care needs. If you don’t have that much, explore options like working longer, investing in a health savings account, or purchasing the most comprehensive Medicare Advantage and long-term care insurance.
5. Think about how you will spend your time
Finally, you need to consider what you will actually do during retirement. Some older adults develop health problems, including depression, when they lose their sense of community and purpose. Make a plan to reduce the risk of becoming lonely and disconnected from the world in retirement.
Depending on your interests, the plan might include volunteering with a local organization, joining a senior center, caring for grandchildren, joining a tour group, or taking an exercise class (seniors can often join a gym for free through Medicare’s SilverSneakers program). You can also do some part-time consulting work, either for a fee or through a volunteer organization like SCORE.
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Are you ready to retire?
If you’ve completed these five steps and are still ready to retire, congratulations! Hopefully you have the savings you need to enjoy your golden years.
If you find that you’re not quite ready yet, don’t worry – you’ve taken the important step of identifying what you want to accomplish and can start checking things off your to-do list.
CNN Business (New York) First published August 20, 2018: 10:19am ET