What steps should one take to retirement or to begin the process? When is it the right time to take the plunge? It can be hard to take that next step for many reasons. Recently, Maurie Backman of Kipling’s Personal Finance wrote an article called, “Retiring? A Big Deal, Even Bigger Change” which was very insightful. Here is a summary:
When preparing to retire Maurie notes people that have a plan seem to adjust better than those that don’t. Planning should include not only finances but also housing and health care. Other factors to consider are travel, social interaction and finding purpose. Those proactive with their plans tend to be the happiest in retirement.
-Financially – Try to wait to draw on your social security benefits. Each year you wait will increase your payment by 8% to age 70.
Calculate a safe withdrawal rate (4% of your savings and then adjust the following year. This is a good rule of thumb, but other factors will affect this like health and life expectancy).
Consider adding investments that will add a return. This helps with market fluctuations and their effects on your retirement. Bonds are popular as they pay at a steady rate and in particular, municipal bonds as their interest is exempt from federal taxes.
-Housing – If you still owe on your home, consider the pros and cons to this outstanding debt. Will your income cover the mortgage and the expenses of your home? Do you want to keep up with the maintenance of your home? If any of your answers to these questions is “No,” then consider selling and downsizing. Many a financial analyst will tell you selling and downsizing can be a great way earn piece of mind. You may end up with additional funds for your investments.
-Health Benefits – Retirement means loss of health insurance. Medicare kicks in at age 65 but it doesn’t cover dental, eye exams or hearing aids.
Medicare Advantage plans will cover these costs but can make the process difficult to get approved.
Part D drug plans are also important to adjust each year along with your Advantage plan keeping them relevant for your needs (adjusting as your needs evolve).
-Traveling – Sooner than later, plan to take those trips you always wanted but didn’t have time for. What do they look like or what will you need to go?
-Social Interaction – It is important to build and continue relationships. It promotes health benefits to stay active. One can get active in their community, join a walking club or other activity that is interesting. You might consider moving into an active retirement community and join one or several of the multitude of activities available within.
-Finding Purpose – Some retirees lose their sense of purpose. Before retiring, plan what will fill your days once you retire. You might decide to start your own business or work part-time even if the funds are not needed. Consider volunteering and giving back to your community while building your social interaction. You can even go back to school and learn about something you always had interest in.
For a more detailed plan, one should consult a financial advisor. Retirement is your time to do what you worked so hard to be able to do. These are steps to help make retirement reality. When it is right for you, plan your steps, make retirement a reality and enjoy the fruits of your labor.
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