As Americans are living longer, healthier lives, many baby boomers are pursuing other activities after retirement — new careers, volunteering, starting a business. If you are planning on retiring, you’ll want to make sure you’re financially and emotionally ready for this next phase. The steps you take today could have a profound impact on the kind of life you have down the road.
Daydream a little bit
Think about the kind of life you want down the road. Do you see yourself living near your children? Do you want to go back to school? Is travel a priority? Grab a pen and paper and make a list of everything you’re dreaming for the future. Don’t worry if it seems impossible — dream a little bit.
Do you have a retirement budget?
A budget might help you determine if you will have enough money in retirement. You’ll need to make a list of your basic living expenses. These are expenses that will continue on with you in to retirement and might include housing, taxes and insurances.
Then be sure to add in potential long-term care or other health-related expenses. Finally, add in other miscellaneous expenses that might go up — such as travel, entertainment or maybe that business you want to start. Will your retirement savings last? Our retirement calculator may help you with your decisions.
Be sure to remember that you might have a reduction in expenses as you may no longer be saving for retirement or commuting to work.
Will your income last?
Once you’ve got your budget figured out, it’s time to determine if you will have enough income during retirement.
Financial experts say you should plan on needing 80% of your pre-retirement gross income. So if you’ve been living on $100,000 annually, you’ll need about $80,000 in retirement. And the amount might vary depending on where you live, your health and the lifestyle you wish to sustain.
Then ask yourself – will that income be enough to fund your fixed expenses along with additional activities? If not, you might want to consider working longer and possibly delaying Social Security benefits.
Can you save more right now?
Statistics show that many workers simply haven’t saved up enough for retirement. Consider making catch-up contributions to your retirement accounts. Workers age 50 and over can take advantage of catch-up provisions that allow them to save more in retirement accounts.
In addition, try cutting your current household budget by about 10% and put that money in to savings. Learn to live on less now.
And finding an adviser might be a good idea. Be sure to do your research and ask family and friends for referrals.
Review your asset allocation
The mix of assets you have today may no longer be appropriate as you head toward retirement. During retirement you will be living off your resources and not a regular paycheck.
That means you’ll likely want to adjust your asset allocation to lower your portfolio risk. To preserve capital, consider moving some money out of stock funds and into bond funds and cash equivalents.
While the opportunities for growth in your portfolio could be lowered, you might sleep better knowing your retirement dollars are in more stable investments.
What's your Social Security strategy?
Social Security typically replaces about 40% of your income. A key decision you’ll need to make as you approach retirement is when to claim Social Security benefits.
You can start drawing your retirement benefits at any point from age 62 up to age 70, but your benefits will be higher the longer you delay starting.
Helpful tools can be found on the Social Security Administration’s website. Visit the site to get a detailed comparison of your retirement benefits at various retirement ages.
Do you have a plan to pay for health care?
Health care is a major retirement expense. In 2020, it was projected a retiring 65-year old couple would spend $295,000 in healthcare expenses during the lifetime of their retirement. That number includes Medicare premiums, copays and deductibles – and the amount goes up every year. And the number doesn’t include long-term care expenses.
Look at your family medical history and your own health to estimate what your costs might be.
Making the decision to retire is a big one. You will have a lot to consider. Starting now might help you to live comfortably during retirement and maybe even enjoy some of those dreams.