Just because you are due for retirement does not mean that you are ready to retire.
Though retirement is thought of as an 'age thing', you could be ready for retirement long before you reach 67.
Yet even though everyone knows that they will retire at some time, preparing for the twilight of your work life is something many people cannot wrap their heads around. This leads to procrastination and delaying of steps which could make you financially secure when you are no longer eligible to work.
Yet, the present economic headwinds do not call for cold feet when it comes to retirement planning. Rising inflation, aggressive rate hikes, and the possibility of the economy heading into a recession call for more proactive steps to be taken when it comes to retirement planning.
Also, the eroding value of the dollar over time, plus increased life expectancy means that retirement planners need to save more than budgeted before. As such, it seems time is the most valuable asset for those that are planning for retirement.
Though finances play a key part in retirement planning, it is not the only factor you should consider.
Other aspects of your life have to be taken into consideration to support the type of lifestyle you want in retirement.
The possibilities are endless.
So how do you know when you are ready for retirement?
If you were born between 1943 and 1954, your full retirement age for Social Security purposes is 66.
You must wait until you are 67 to retire if you were born after 1959. There are 66 and a few months between the dates. Although you can begin receiving Social Security payments as early as age 62, waiting until full retirement age will result in substantially higher payouts.
Your monthly payment is drastically lowered by a stunning 25% if you begin receiving retirement benefits at age 62.
If you start collecting Social Security early, it will also lower any survivor benefits your spouse is entitled to in the event of your death. This could be a financial problem if your spouse outlives you for many years.
On the other hand, if you choose to wait longer to claim Social Security (the maximum age of delay being 70) you'll receive as much as 132% of the monthly benefit you would have collected at your full retirement age.
Paying off your debts commitments puts you on the path for a good retirement.
It makes no sense to pay debt while on retirement. When you’re on a fixed income, a hefty mortgage or car payment can put a major strain on your finances. It also makes it more difficult to deal with emergency expenses.
If you have credit card debt or still owe a lot of money on a home or car, you may want to postpone your exit from the labor market.
Having fewer responsibilities makes it easy to retire.
Supporting aging parents or kids at home is as expensive as college and housing costs continue to rise. There is no way you can downsize and minimize expenses if you have a household to take care of.
If your kids are grown up and out of the house, or you don't have aged parents to take care of, then you can start implementing your retirement plans.
Even while it might seem obvious, many people who will shortly be retiring don't do the math.
Determine whether you can live comfortably on your post-retirement income before quitting your job.
Start by totaling your monthly expenses that are a must, such as:
Then include your "wants," such as:
It's time to determine if you'll have enough revenue to pay for your anticipated monthly expenses after you've estimated them.
Include your anticipated Social Security benefits, dividends from your retirement accounts, pension payments (if you receive them), and any additional sources of income you will have in your total.
Keep in mind that all distributions—aside from those from Roth IRAs, Roth 401(k)s, and a part of Social Security - will be subject to income taxes (unless you meet the income threshold for tax-free Social Security benefits.)
Budgeting should also take inflation into account. Although yearly inflation has been only 2 to 2.5% on average over the past few years, there is no assurance that it won't increase in the future.
Additionally, some inflation rates, such as those for medical costs, may be much higher. An often-overlooked component of one's retirement budget is the cost of healthcare during retirement.
Fortunately, Social Security now provides cost-of-living adjustments (COLA), but many pension plans don't, so your objective for retirement plan contributions is to continuously earn enough to outpace inflation.
Now is the time to project how much money you will need to cover those expenses once you have created your retirement budget. Your sources of income will normally comprise retirement funds, Social Security, and pension payments if you're fortunate enough to have one, as was previously discussed.
Even while Medicare can help with a lot of the costs, it's very probable that you'll still have to pay for supplemental medical costs out of your pocket.
When it comes to long-term care needs, this is especially true.
In order to prevent depleting all of your finances owing to the extremely expected rise in your medical expenses as you age, having enough insurance in place is a crucial step before retiring.
Having a well-structured retirement nest is the pivot upon which a happy retirement revolves.
You want to retire with the confidence that you have enough to take care of your expenses and any emergency that may come up.
There are three things to consider when building a retirement portfolio: size, rate of growth, and your expenses. Your expenses determine how much you would need to save or invest.
Thereafter, you have to determine which appropriate size (or amount) is based on your expenses. To weather the effects of inflation, offset losses, or other uncertainties, your portfolio has to be able to post gains annually.
When you are younger, you can take more investment risks to grow your portfolio. As such, investing in stocks can be a viable way to grow your portfolio.
As you get closer to retirement age, your priority should shift from growth to security of your assets. As such, you move towards less risky assets like bonds or Certificates of deposits.
Retirement affects everyone unless you live alone. You and your partner should decide together when to retire.
How the change in your salary will affect your relationship is one thing to talk about. You'll have a better chance of having a satisfying retirement together if you and your spouse are both emotionally and financially prepared for it.
Your retirement may be a lot more lonely than you anticipated if your partner plans to work for a long time. On the other hand, if both partners have work, retiring simultaneously can be financially and psychologically upsetting.
Always keep lines of communication open, but especially when it comes to managing your home finances. You'll feel more at ease about entering your next stage of life if you and your spouse are on the same page regarding your retirement plan. Therefore, it is vital that you determine the timing that works best for both of you.
It's crucial to have a life plan after retirement for two key reasons.
It will first help you create a more precise budget and keep you from overspending. If your retirement strategy consists of doing nothing but lounging around the home and living day to day, you're more likely to succumb to temptations like that "last-minute cruise" discount or shopping for trinkets to occupy your time.
You'll be less inclined to succumb to moment-to-moment spending distractions if your day has some structure.
Perhaps even more crucially, making a plan for your life after retirement can keep your mind active and ease the transition to retirement. You might get bored or even upset with your new retired life if you don't have anything to do.
Finances play an important role when planning for retirement, but it is not a one-size-fits-all approach. Other factors such as your health, spouse, and lifestyle also play critical roles in determining whether you are ready for retirement.
This is why some have advocated for the live and die with zero approach as a constructive way to look towards retirement. Others suggest accumulating as much as you can and retire early so you can do the things you love.
Whatever your approach, one thing is obvious: retirement has nothing to do with age, but how prepared you are. Many who have attained retirement age, have to keep on working, while others have retired early to face other things. The choice is yours.
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