admin August 20, 2018


Dreaming of handing in your notice at work and joining the ranks of the retired?

Retirement can be wonderful — if you’re prepared for it. So before you put an end to your career, it’s essential to make sure you’re 100% ready.

Not sure how to do that? Taking these five steps can put you on the path to a happy and secure retirement.

1. Coordinate with your spouse

If you’re part of a twosome, retirement doesn’t just affect you; it’s a profound lifestyle change for your entire family. Before you take the leap, get on the same page as your spouse.

Will you both be retiring, or will your spouse work longer? If your spouse is planning to maintain a career, will you end up being responsible for more household tasks — and are you OK with that? These questions need to be answered.

You’ll also have to think through how your decision will affect your family finances — especially when it comes to Social Security benefits. If you’re claiming Social Security benefits early, you’ll reduce the monthly benefits you receive for the rest of your life — as well as any survivors benefits your spouse could receive if he or she were to outlive you.

Devise a Social Security claiming strategy with your spouse before you file for benefits that maximizes your combined income, as you can’t easily change your plans once benefits have begun.

2. Figure out where your income will come from

When you no longer have a paycheck coming in, you’ll need funds from other sources.

For most people, retirement income comes from Social Security and savings. A lucky few — mostly government workers — have a defined benefit pension plan to provide guaranteed income. For the rest of us, having enough money invested to supplement Social Security is essential.

To make sure you won’t come up short, add up all your potential sources of retirement funds — from pensions, Social Security, and withdrawals from retirement accounts such as 401(k)s and IRAs — and figure out what your total monthly income will be.

Estimate your Social Security income by visiting mySocial Security to find your benefit amount at full retirement age. Once you’re logged in, there’s a free retirement estimator to help you determine what your benefits will be based on the age you retire. If you’re not ready to create an account, the SSA also has a quick calculator available to estimate benefits by inputting your current year’s earnings, your birth date, and your future retirement date.

To determine the income you’ll receive from investments, you could use the 4% rule, which allows you to withdraw 4% of your account balance in your first year of retirement and then adjust that withdrawal amount each year based on inflation. However, there’s a chance you’ll run out of money by following the 4% rule, so you may want to take another tactic, such as following the advice of experts from the Center for Retirement Research to determine what percentage of your account balance to withdraw annually.

When you add up Social Security income, income from investments, and any other money you’ll have coming, you can make an informed choice about whether it’s feasible to live on the funds available.

3. Set a retirement budget and see if there’s a shortfall

So how do you know if the total income you’ll have will be sufficient to support you?

The best way to tell is to actually make a budget. Factor in all of your fixed costs, such as housing, taxes, and insurance. Add up other expenditures such as traveling, clothing, personal care items, transportation, food, and entertainment. And don’t forget to include saving: Just because you’re no longer investing for retirement doesn’t mean you don’t need to put aside money for other purposes, such as home repairs or emergencies.

Your budget will reveal how much money you’d actually need. If it shows you’ll have plenty of income to cover everything, you’re good to go and can hand in your notice.

If it doesn’t, decide between scaling down your expectations for retirement or increasing your retirement income by working longer, saving more, and earning delayed-retirement credits to boost Social Security benefits.

4. Make a plan for healthcare

One of the big line items in your budget will be healthcare costs.

Seniors often suffer from serious medical conditions, and Medicare doesn’t provide the comprehensive coverage most people believe it does. You’ll have to pick up a lot of prescription costs on your own; you’ll pay premiums and coinsurance expenses; and you’ll need to pay out of pocket entirely for care that isn’t covered, such as nursing home services.

Recent estimates suggest a senior couple in the top percentile for prescription drug use would need $370,000 to be reasonably certain of covering their healthcare needs in retirement. If you don’t have that much, explore options such as working longer and investing in a health savings account or purchasing the most comprehensive Medicare Advantage and long-term care insurance available.

5. Consider how you’ll spend your time

Finally, you need to think about what you’ll actually do during retirement. Some seniors suffer health issues, including depression, when they lose their sense of community and purpose. Have a plan to reduce the risk of becoming lonely and disconnected from the world after retirement.

Depending upon your interests, this plan could include volunteering with local organizations, joining a senior center, babysitting your grandkids, joining a travel group, or taking exercise classes (seniors can often join a gym for free through Medicare’s SilverSneakers program). You could also do some part-time consulting work, either for pay or through volunteer organizations such as SCORE.

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Are you ready to retire?

If you’ve gone through these five steps and still feel ready to retire, congrats! You should hopefully have the savings you need to enjoy your golden years.

If you’ve found you’re not quite ready yet, take heart — you’ve taken the important step of identifying the tasks to accomplish and can start checking things off your to-do list.

CNNMoney (New York) First published August 20, 2018: 10:19 AM ET



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