A comfortable retirement involves a lot of planning ahead. Before you make the decision to stop working, you want to make sure you have the financial stability to enter retirement with a manageable budget and a secure outlook.
As retirement nears, work with a financial advisor to make sure you’re prepared to make certain changes to your money management. Here are a few steps we recommend taking as you transition your finances into a new life chapter.
1. Determine whether certain debts should be paid off in full.
There are certain cases in which it might be OK to carry debt into retirement. If you’re still making mortgage payments but the interest is low, for example, you might be fine making regular payments and keeping more money in retirement funds.
In general, though, a good goal is to have most of your debts paid off before you retire. This allows you to enter retirement with a clean slate and with a better view of your finances and your monthly living needs.
2. Reallocate your investments to lower-risk funds.
A financial advisor should be gradually transitioning your investments toward lower-risk, lower-reward funds as you move closer to retirement age. If you haven’t done this, make sure it happens when you retire.
Even if your investment risk profile has gradually decreased over time, you may still want to make financial adjustments to avoid asset depreciation from an economic recession or other factors that could cause your net worth to decline.
3. Line up a new health insurance plan.
Giving up your employer’s health insurance? Line up a policy for retirement before you leave your job.
Check with your employer before you purchase a policy on your own. Some employers offer continued health insurance for a set period of time after you retire, or they may offer discounted access to your same health insurance plan until Medicare kicks in.
Whatever you do, make sure you have coverage in place ahead of time—don’t put yourself in a position where you’re scrambling to avoid lapsed coverage at the last minute.
4. Make monthly retirement withdrawals based on your financial plan.
Your retirement savings will become your primary source of income, so you need to have a plan for how you’ll take withdrawals. Not only do you have to decide how much to withdraw every month, but you’ll also need to choose which funds these withdrawals will come from.
IRAs have rules governing at what age you’re allowed to take penalty-free withdrawals from them, and some have mandatory distribution rules above a certain age. Make sure your withdrawals are avoiding penalties or unnecessary fees.
You’ll also want to determine when to claim your Social Security benefits. If you want to start receiving payments before your full retirement age, it could result in lower total payments over your lifetime. Use a Social Security benefits calculator to determine how you can best optimize these benefits.
5. Consider downsizing or relocating.
Now that you don’t have a job holding you down, are you interested in downsizing your home and/or relocating to a different area? For some retirees, downsizing and relocating is part of their retirement plan.
Moving could also be a way to access additional funds through the sale of your home, which can support other retirement goals, such as traveling or lowering your target retirement age.
6. Decide whether you want a part-time job.
Retiring from a full-time job doesn’t necessarily mean the end of work. Some retirees seek out part-time employment as a way to supplement their retirement savings and to stay busy while still enjoying a flexible schedule.
Whether you opt for a part-time job, volunteer work, or other retirement activities, the choice is up to you.
Retirement can bring with it a broad mix of emotions: excitement, uncertainty, relief, fear. For most people, the biggest worries all relate to their financial outlook and whether they’ll be able to achieve their most important goals for retirement.
By working with a financial advisor and planning for your future retirement, you can hit the ground running and enjoy a worry-free transition into your golden years. If you’re not quite ready to retire but want to have a plan in place, use our Retirement Calculator to figure out how much you need to save to hit your financial goals.