Financial and non-financial questions and considerations that can affect your ability to enjoy retirement
You’ve paid your dues in the working world, and you finally feel ready to retire. Maybe you’ve enjoyed your career and are looking forward to trying something new. Or perhaps you’ve worked hard for years and are eager to leave it behind as soon as you can.
But how do you know when you’re truly ready to retire—not just financially, but also physically, mentally, and emotionally? It’s not just about age or when Social Security tells you you’ve hit “full retirement age.”
Actually making the leap into retirement is much easier said than done.
Here are some questions and considerations to test your readiness and ensure you’re not jumping the gun.
What Are Your Retirement Goals?
First and foremost, think about what fills you up. Images of beaches, golf courses, or gardening projects may come to mind, but those activities are not the answer for everyone.
The key to financially and mentally planning for retirement is to envision a day, week, month, and year in your life. What kinds of things will you want to do–try more new restaurants? Travel? Pick up a new hobby or five? Volunteer your time with organizations that are important to you?
Next, consider how those goals and desires will affect your expenses. For most of us, expenses will change when we are no longer working. For some they will rise, and for some they might fall. Each retirement is unique, and getting clear on what you want yours to be is an essential first step.
Going through this exercise will not only help you identify expenses, but it will also mentally prepare you for the transition and help you identify your passions and purpose. You might even find that leaving the workforce is not what you want to do. Maybe there is a new career, perhaps one with less income and less of a time commitment, that is calling to you. Whatever the outcome, this exercise will help you think about your goals and your retirement budget.
Take Care of Existing Debt
Taking care of debt doesn’t necessarily mean paying it off. Though for many of us, the idea of launching into retirement debt-free is very calming and confidence-inspiring, and having no debt certainly puts you in a strong financial position. What it really means is having a plan.
Can you handle paying off the debt you have with your retirement income? Consider any outstanding loans, lines of credit, credit card balances, and other debt. What do you need to have paid off before you can entertain a transition into retirement?
There’s no way around it: when you retire, you will need to replace your working income. How much of it you need to replace—your “replacement ratio”—can vary widely depending on your unique retirement. Some people might only have to replace half of their current income to do the things they want to do. Others might need to replace 100 percent or even more to accommodate their globe-trotting goals.
Understanding and planning for Social Security is a key part of retirement planning. When you should start taking your benefit depends on several factors, including expected longevity, family needs, and other income. Make sure you adequately plan for any potential changes or shortfalls to the system itself to avoid getting caught off guard if your Social Security benefit doesn’t keep pace with inflation, if the taxation of benefits changes, or if there are more material changes to the broader system.
Finally, review your investment allocations to ensure they reflect your life stage and needs in retirement. Many of us rely heavily on our retirement savings to provide us with income in retirement. You should create an investment strategy that protects your nest egg from market volatility but also maintains the market exposure you need to grow your investments for a sustainable future.
Health Insurance and Health Care Costs
Health insurance changes when you leave the workforce. If you retire but aren’t yet eligible for Medicare, you’ll need to have a plan to fill the gap. Health insurance in the state or federal marketplace can look very different than employer-provided coverage, and understanding premium costs, deductibles, and coverage is paramount.
When you do become eligible for Medicare, you’ll still need to explore your options and make decisions about your coverage. Medicare has many ABCs that all affect how you are covered and what your out-of-pocket costs are.
Health care costs in retirement are challenging to predict. Many of us will require more care as we age, bringing with it previously unforeseen expenses.
You have options to account for health care needs. Building up your health savings account during your working years can give you a tax-free bucket of money for this specific purpose. Making sure your plan has sustainability at higher-than-anticipated expenses can provide you with confidence, and real estate equity can offer a cushion and peace of mind.
In addition, long-term care insurance is something to explore as part of a larger health care plan, but should be carefully considered as it comes with strict parameters and annual premiums.
Getting your estate in order is something you should do well in advance of retirement—in fact, everyone should have an estate plan in place, regardless of your age and stage of life or career.
Have your wishes changed? Does a living trust make sense for you? Are your powers-of-attorney and advanced health care directives up to date?
Finding a partner that can help you consider your full picture and design your documents to fit your unique situation is essential for all of us, but particularly those of us heading into retirement.
Ready to Retire? Do It With Confidence
Once you’ve tackled the planning areas detailed above, you’ll be in a much better position to enter retirement with whatever goals and priorities you’ve set. You’ll have a lower risk of leaving the working world too early, and you’ll be able to spend more time enjoying retirement with confidence rather than worrying about money.
Reach out to our team of Personal CFOs to start checking the boxes on your retirement strategy and building the next chapter of your life.
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