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If you’re looking forward to retirement, you’re not alone. Countless workers dream of the freedom of leaving their jobs and enjoying unfettered days. But before you pull the trigger on retirement, be sure to address the following questions so you won’t regret your decision later.
1. Assess your personal savings
Hopefully, most of your working hours are spent in an IRA or 401(k) account. If you’re thinking about retirement, now is the time to evaluate your balance and understand what it actually means for your day-to-day cash availability. When you look at an IRA balance of, say, $500,000, it’s easy to think, “Wow, that’s a lot of money.” But if we apply a 4% annual withdrawal rate (which has long been the standard) , then $500,000 only translates into $20,000 in annual income, with some adjustments for inflation.
Of course, this number doesn’t take into account other sources of income you may have, such as rental income or part-time income. It also doesn’t take into account Social Security. The point, however, is to look beyond the numbers you see on a retirement plan statement and determine how much income it will actually earn you.
2. Create a retirement budget
Maybe you’re used to following a budget and diligently tracking your spending. While it’s certainly a positive habit worth celebrating, once you stop working, your spending may change — for better or worse. While you may save money on things like commuting and transportation (retirement may allow you to downsize your two-car household to one, saving money on maintenance and insurance), you may spend more on things like leisure money because you will have more free time.
Before you retire, create a new budget that details the expenses you expect to encounter after your career is over. You may need to adjust this budget over time, but having a budget in place can give you a good idea of whether your savings are enough to last you through your golden years, or whether you need to save more before you make any money money. Retired official.
3. Understand medical costs
We all know that health care can be expensive at any stage of life, but you might be surprised to know that the average 65-year-old man today will spend $189,687 on health care throughout retirement, while the average 65-year-old woman will Cost $189,687. Cost $214,565. Ouch. Worse, these numbers don’t take into account long-term care—statistically, 70 percent of people 65 and older are likely to need long-term care.
The good news, however, is that the more you know about senior health care costs, the better equipped you will be to manage them and keep them to a minimum. Therefore, it’s worth looking into long-term care insurance, which can help cover some of the astronomical costs seniors face when they inevitably need nursing home or assisted living care.
4. Develop a strategy for claiming social security
If you’re like most seniors, Social Security will provide a large portion of your retirement income. But while your benefit itself is calculated based on your earnings during your career, the age you first apply for benefits can cause that number to rise, fall, or stay the same. That’s why it’s important to develop a strategy for claiming benefits rather than acting blindly.
For example, if you apply for benefits at full retirement age (i.e., age 66, 67, or 66 plus a certain number of months), you will receive the full monthly benefit to which you are entitled based on your work history. If you delay your full retirement age, your benefits will increase. If you file before full retirement age, you’ll face a reduction in benefits, but you’ll also receive your money sooner. There’s no right or wrong answer when it comes to choosing your filing age, but what you should do is know your full retirement age and understand the consequences of claiming benefits at different points in time.
5. Figure out what you will do with your time
While the idea of having all the free time in the world may seem appealing, reality can hit you hard once you find yourself in this situation. The fact is that transitioning from a full-time work arrangement to a complete lack of structure is difficult, which explains why so many retirees end up falling victim to depression.
If you want to avoid this fate, make a plan for how to spend your newfound free time and make sure it fits your budget and income. You might think you’ll go golfing twice a week and travel once a month, but if your savings can’t support that lifestyle, you’ll need to make different plans.
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If you’re prepared, retirement can be an exciting and fulfilling time in life. Make these key moves before calling it a day, and with any luck, you’ll make the most of your golden years.
CNN Business (New York) First published September 17, 2018: 9:39am ET