Prepare For Retirement in 7 Steps
If the pandemic proved anything, it’s that life tends to get in the way of our plans — including retirement plans. Over the course of the pandemic, many people were forced to retire early, others decided they wanted to retire and still others opted to change their planned retirement date.
The number of people affected is high; a recent survey found that more than 80% of Americans say their retirement plans were impacted by the pandemic.
When you retire may be out of your control, but here are seven steps to take that will help you retire in comfort:
1.Decide what you will do with the money in your 401(k) plan. Will you have to roll the money into an IRA, or can you leave it in the 401(k)? What fees are involved? Health care can be costly. Become familiar with the rules and start exploring your Medicare options before you reach age 65. For example, will you join a Medicare Advantage plan, or take straight Medicare and pay for a supplemental plan and prescription drugs? If you do not start paying for Medicare at age 65, you may trigger hefty penalties whether or not you expect to retire at that age.
2. Determine what your monthly Social Security payment will be and at what age you will apply for it.
3. If you will get a pension, carefully choose from the available payment options. For instance, will your pension go up if you continue working for another year or two? Should you take a lump sum or an annuity?
4. Understand which of your benefits will follow you into retirement. For example: Will the company continue to pay for all or a portion of your health care coverage or your life insurance policy?
5. Pay down any large credit card debt and loans while you are still employed. However, you may choose not to pay off your mortgage. Depending on your tax and financial situations, paying off your mortgage may not be the best option.
6. Plan to have enough in savings to cover at least one year of expenses so that you are prepared for any emergencies.
7. Review your anticipated budget to understand how much you will be spending on fixed and discretionary expenses. For a realistic budget, know your projected income. This involves understanding where your income will come from—and which income is guaranteed and which is not.
Recognize that some expenses will go down when you retire (e.g., commuting and clothing costs), and others will rise (e.g., health care, long-term care, travel and hobbies). Be sure to include long-term expenses in your projections.
Assess whether you can fully retire or will need to find a job to supplement the income from your savings.
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