Getting close to retirement often means having a lot of feelings – from excitement about what comes next to nerves about the unknown. Questions like, "What will I do? Will I have enough money? Will I still need to work part-time? Should I move closer to friends and family, or become a snowbird?" are all common.
These are great things to think about as you near retirement age, though it’s a good idea to start your planning earlier in your career so you don’t have to scramble during your last few years at work. Before it sneaks up on you, here are steps to follow so you can retire comfortably.
Create a budget to see when you can retire
There’s plenty to enjoy about being retired, but the lack of steady, work-related income can be a challenge. It’s important to develop a financial plan to identify if or when you may be ready to retire.
Try to budget around your long-term expenses. While some expenses, such as those related to work commutes, may decrease, others could increase. This may include healthcare costs or travel expenses. Take inflation into account as well, as some items may simply become more expensive over time.
You will also want to pay off debt. Focus on ensuring your mortgage is paid off before you retire and limit credit card debt.
If you find you have a gap in your financial plan, increase your retirement plan contributions. Try to maximize your allowable contribution and take advantage of catch-up contributions if you’re age 50 or older.
Understand Social Security benefits and when to start them
A key component of financial planning in retirement is understanding your Social Security benefits. The average Social Security retirement benefit in 2023 is roughly $1,827 per month1. You can get an estimate of your own retirement benefit at the Social Security Administration website, ssa.gov.
Deciding when to claim your benefit will impact what you are able to get. You can elect to receive as early as age 62, but this will result in a reduced benefit for life. If you wait until your full retirement age or later (up to age 70), your benefit will be larger.
Review your investment portfolio
You may have several different investment accounts that you’ve accumulated over your working life. Once you review all your accounts, it’s possible that you find that your investments are more or less aggressive than you remembered. It’s important to review your overall asset allocation to ensure it matches your risk tolerance, time horizon and liquidity needs. A balanced portfolio that continues to have growth through your retirement years is a critical piece of your financial plan.
Analyze your insurance
Healthcare costs are likely to increase as you get older, so it’s smart to have a strategy. Medicare Part A and B will cover a large portion of your medical expenses after age 65. Review Medicare Advantage plans to fill gaps in traditional Medicare coverage and set up a reminder to sign up for Medicare within three months of your 65th birthday. If you work past age 65, staying on your employer’s plan should be evaluated. If you are retiring early, you will need to find a plan to cover you until Medicare kicks in.
Review long-term care needs
One of the largest potential expenses is long-term care. About 60 percent of people will need assistance with things like getting dressed, driving to appointments or making meals at some point in their lives2. Think about what you might need for long-term care and the options that best fit your needs. Premiums increase as you get older, so buying coverage early may be beneficial.
Get ready to live your best life
With a strong plan in place, you can begin to envision what your retirement will look like. One of the first things to consider is where you’ll live. You may want to stay in your current location, but many retirees choose to get a second home, such as a property in a warm climate for winter months. This will of course change the cost of housing significantly, so be sure to build a second home into your budget if you go this route.
With extra free time on your hands, it’s also a good idea to explore what you want to do in retirement. Maybe you want to travel or pick up a new hobby or spend more time with friends and family. Whatever you choose, you’ve earned this time and deserve to make the most of it. Some items, such as travel, will come with additional costs. That’s why it’s so important to plan for your retirement early, so when the day comes, you can enjoy it to its fullest.