Thinking about retirement can cause a massive amount of stress and anxiety. That’s mainly because you will have to live a frugal life on a fixed income. However, living a comfortable life without compromising on your standard of living is possible.
To make sure your retirement plan goes off without a hitch, you will need to do a bit of careful planning and financial preparation.
From estimating your retirement expenses to determining the right time to draw Social Security benefits, there are a lot of things to think about in the pre-retirement phase.
To help you out, we’ve put together a handy pre-retirement financial checklist. This financial checklist will ensure you stay on track and transition into your golden years smoothly. Check it out, then!
#1 Create Your Retirement Income Plan
Only half of the U.S. citizens have calculated the amount they need to save for retirement. That’s shocking.
Retirement, believe it or not, is expensive. Many opine that around 70 to 90 percent of pre-retirement income is needed to maintain living standards after an individual stops working. However, such predictions are unrealistic, especially if mortgages are unpaid.
If you haven’t already created a retirement income plan, now is the time to do so. That’s because planning ahead is the key to a secure retirement.
Review all your investments, including bank accounts, taxable accounts, and company-sponsored retirement plans. This will help you understand your net worth. Thereafter, you can calculate your expected retirement expenses, which will help you determine if your income will be sufficient to meet them.
#2 Consult With a Financial Advisor
Unless you’re an expert, creating a retirement plan shouldn’t be a do-it-yourself endeavor. That’s because it’s difficult to stay objective with your own money. Getting professional advice in your pre-retirement financial journey will ensure your retirement planning is on the right track.
A financial advisor will draft a report after taking a detailed look at your income and expenses. This report will likely specify how much money you will be able to withdraw each month from your account post-retirement. Besides, this report will let you know the amount you should save each month until retirement.
MyStages advises people to consult a financial advisor because they will expose them to products and strategies that can help them align their financial position with their retirement goals.
#3 Prioritize Debt Reduction
Paying off your debt is one of the wisest things you can do in your pre-retirement days. If you put off debt payments now, you will have to pay more interest later. Moreover, excessive debt can eat up your savings and affect your standard of living.
Debt repayment before retirement will give you financial freedom later in life. High-interest debts like personal loans and credit cards should be prioritized. Pay more than the monthly minimum if possible.
Once your high-interest debt is cleared, you can move to other debts like high-rate mortgages. We urge you to pay off high-interest debts because they help save money in the long run. That way, you can enter retirement without any major financial obligations.
#4 Decide When to Claim Social Security Benefits
Another critical decision that you will have to make in the decade leading up to retirement is deciding when to claim Social Security benefits.
Social Security retirement payments, on average, replace 40 percent of pre-retirement income. While you can start receiving them as early as 62 years, your monthly payments could be higher if you wait until 67 or 70.
Experts advise holding off on Social Security benefits until you touch 70. That’s because you’ll receive bigger monthly checks. As per the Social Security Administration, those turning 62 this year will have their benefits lowered by around 30 percent if they claim now rather than waiting until 67.
Delaying Social Security benefits can lead to higher payments, so evaluate your options carefully.
#5 Don’t Forget About Health Insurance
For life-threatening and debilitating conditions like cardiovascular disease and cancer, age is the primary risk factor. Having health insurance handy will make it easy for you to get the care you need in later years.
For those who retire at 65, Medicare will pretty much take care of everything. But if you decide to retire earlier than that, you will have to find alternative coverage. Options like COBRA, private insurance, and spousal coverage are worthwhile.
Though the primary health insurance policy for retirees is Medicare, it doesn’t cover everything. That is why buying a Medigap policy is advisable as soon as you enroll in Medicare Part B.
The countdown to retirement is often fraught with worry, but careful financial planning in your pre-retirement days will ensure a secure and fulfilling future.
By creating a budget, paying off your debts, evaluating Social Security options, and planning for healthcare costs, rest assured that you will make a smooth transition into retirement. In case you need any help, seeking advice from financial advisors will be the best bet.