The amount of money, investments and government support you’ll need to retire comfortably is as individual as you are. Some people plan to work in retirement. Others have health issues or other financial responsibilities – kids’ college bills, financial support for a senior relative – to juggle with the everyday living expenses they’ll face in retirement.
Still, one thing is true for every potential retiree. It makes sense to get customized advice from qualified financial, tax and estate planning professionals at least one year before a retirement date is set.
Following are some preparatory steps to take before you set your retirement date.
Figure out where the money is: The days of single-employer careers have been over for decades. And nearly 30 years into the world of widespread IRAs, 401(k) and other self-directed retirement plans, many potential retirees can’t reliably state where all their retirement resources are located. Start pulling together all available paperwork tracking personal, government and employer-based retirement assets. It’s OK if you don’t know immediately whether you have enough to retire – experts can help you with that. What’s important right now is to identify everything you have so you can properly evaluate alternatives.
Identify debt: If you have significant home or consumer debt, that’s a tough burden to take into retirement because most retirees find their income will be somewhat or significantly lower. That also goes for big car payments, tuition debt, medical debt or elder support. Debt is the first major reality check on retirement for most people.
Adopt a downsizing budget: Too many people wait until retirement to learn how to live like retirees. If you have a budget, review it for unnecessary spending and ways to cut. That could mean anything from scaling back on lattes to selling a bigger, more expensive car and going with public transit or a used vehicle. If you’ve never made a budget, now’s the time. Budgeting for retirement doesn’t mean cutting out every treat and luxury – it simply means extinguishing debt, setting priorities and determining which current expenses can be cut or eliminated.
Evaluate your support from the government: A good rule of thumb is, “If you need Social Security or Medicare to retire, it’s best to keep working.” While both of these programs remain an enormous help to many retirees, there’s always a chance of significant change in these programs (not to mention the continued discussion of moving the official retirement age past 65). Definitely evaluate your government benefits, but do so in the context of what you’ve accumulated privately so you can maximize your government benefits when you need them.
Consider healthcare and long-term care now: If you’re lucky, your health is in great shape. But family history and events out of the blue may change that. If you retire before age 65, you won’t qualify for Medicare unless you are officially disabled. That means that you’ll have the responsibility to maintain private insurance that adequately meets your needs without huge financial risks that can come from uninsured care or procedures. Even as healthcare reform adds certain protections for under-65 policyholders, it’s more important now than ever to give attention to health matters and whether your current insurance strategy is adequate. As for long-term care, many Americans still forget that the bulk of home-based and nursing home care must be paid out of pocket. While long-term care insurance exists, age and health needs can potentially make it very expensive, so this is another important financial planning issue.