The thought of retirement makes most people ecstatic at the possibilities. No longer will you have to conform to someone else’s schedule and pursue your own interests. You’ll finally have time to do those things you really love — travel, a new hobby, spending more quality time with your grandchildren, or whatever makes you happy.
While most retirees look forward to having more free time, they also might face a bit of trepidation when they think about their finances. The following tips can help you transition more seamlessly from working life to one of retirement.
1. Know How Much You’ll Need to Live On
Even though being retired is new ground for you, it doesn’t mean you can’t get a reasonably accurate estimate of how much income you’ll need every year. You can use a worksheet online or build your own that you can tweak when things change. The key to its accuracy is to take into account any changes that might occur down the road.
For example, if you anticipate paying off your home’s mortgage prior to retirement, you’ll have one less bill to account for. Suppose, though, that your homeowner’s insurance and property taxes are currently rolled into your mortgage payment so you pay all three with just one bill. Once you pay off your mortgage, you’ll need to start paying for insurance and taxes out of your own pocket. That expense will need to be accounted for.
Another common pitfall is health insurance. You might be covered under your employer’s health insurance plan now, but you’ll need to make other arrangements once you retire. Purchasing health insurance isn’t the only healthcare hurdle that retirees face, though. Many find that they spend more on healthcare than they anticipated. In fact, healthcare spending is the third highest retirement expense behind only housing and transportation.
2. Estimate Your Lifespan
Of course, you can’t predict how long you’ll live but you should plan like you’ll have several decades of retirement to enjoy. While the average life expectancy for a 65-year-old retiree is about two more decades, it’s important to remember that this number is only an average. In fact, these days many more 65-year-olds will reach their 90th and 95th birthdays — and even beyond.
Managing your retirement expenses like you’re going to see those far-flung birthdays helps this period of time stay comfortable. If instead, you burn through your nest egg like you only have another 20 years to live, you might be faced with some hard choices after you turn 85.
There might not be a way for you to estimate how long you’ll live, but you can be proactive about staying healthy. Make sure that you get regular checkups and follow your doctor’s recommendations regarding any health issues that might be experiencing. Exercise regularly and do those things that make you happy to try to keep stress to a minimum.
3. Consider Your Retirement Lifestyle
Once you’ve made the calculations noted above, you’ll be able to better assess whether you can afford the lifestyle you were hoping to embrace once you retire. Do you plan to downsize your home in order to slash expenses and add to your retirement income? Will you travel back and forth between more than one home?
Being able to narrow down what your plans are for retirement will help you keep your withdrawals accurate. Many people nearing retirement age are under the impression that making withdrawals of 7 to 15 percent from their retirement savings is a figure that experts recommend. This amount far surpasses the actual recommendation of only three to four percent though. While the actual amount depends on factors such as your lifestyle and whether you plan to supplement your income, the key is to take regular stock of your retirement funds and make the necessary adjustments so you can continue to enjoy your retirement.
Taking steps now — before you decide on a retirement date — can help you feel more financially secure during this period of your life. You’ll be able to enjoy yourself more without being concerned that you’ll have to make drastic changes to your lifestyle in mid-stride.
Regards,
Ethan Warrick
Editor
Wealth Authority
