Retirement rarely happens by accident. For most people, leaving the workforce is the result of a slow climb. Specific moves are made in advance to make sure financial resources will be sufficient later in life and are tucked away somewhere safe. Here are six important action steps to prepare for retirement:
1. Identify your retirement goals and assess your income. The biggest worry most retirees face is whether they have enough money to live on. Calculate how much money you will receive in the form of retirement withdrawals, pensions and Social Security and how much cash you have stashed away in the bank.
In addition to tallying up your retirement income, it helps to list your retirement goals. “Identifying your goals will help you determine what your target income ought to be in order to fulfill your objectives,” says Tony Montenegro, founder of Blackmont Advisors in Orange County, California. With a handle on your income and your retirement goals, you can determine whether your savings are enough to make the type of retirement you desire a reality.
[See: 10 Ways to Get Ready for Retirement After Age 50.]
2. Create an actionable retirement plan. “Develop a personalized financial plan,” says Joseph Azzopardi, a certified financial planner for The Well Planned Retirement in Orange County, California. Ideally, you’ll want multiple income streams that help you pay your retirement bills, but also as few expenses as possible. It’s easy to overlook the small things that can have a tremendous impact on your financial life in the long run. “Taxes, inflation, longevity assumptions, medical care and estate planning are the most common items I see clients overlook when reviewing retirement plans,” Azzopardi says. While it’s possible to work through your income and goals yourself, sitting down with a financial planner can also be a smart move as you approach retirement. If you’re unsure your money will last, a financial advisor can give you a definitive answer.
3. Cut back your spending. As you consider how much money you’ll have to spend in retirement, it’s equally important to create a budget. A budget will help you compare your planned monthly spending to your income. If the numbers don’t match up and you anticipate a cash shortage in retirement, you will need to find ways to dial your spending back.
“Many people still do not know exactly where all of their money goes, but it’s a critical and simple first step for any pre-retiree,” says Shane Sullivan, a certified financial planner for United Capital in Austin, Texas. To create a simple starter budget, take a sheet of paper and create two columns. Write all your income streams on one side of the page and all your fixed, estimated and fluctuating expenses on the other. Compare the figures for your income versus your expenses to see where you stand. Then, look for expenses you can cut once you retire. Sullivan also suggests living on your retirement budget for a few months before you pull the trigger. “There may be some uncomfortable adjustments you need to prepare for now to make sure you’re ready to go,” he says.
[See: How to Save $1 Million by Retirement.]
4. Dial down your investment risk. Future retirees need to take a close look at their investments within a few years of retirement. That way, they can transition at least some of their retirement savings from accumulation strategies, which often involve risk and uncertainty, to preservation strategies intended to maintain capital. Perhaps you’ll want to buy an annuity for guaranteed income or simply move the bulk of your investments from high risk funds to options with less risk and volatility. “Being heavily invested in the stock market could be a recipe for disaster if there is an unforeseen correction in the market,” says Matthew Jackson, a financial advisor for Solid Wealth Advisors in Fort Collins, Colorado. “And no one wants to have to go back to work because of a loss of retirement savings.” While none of us can predict how the market will perform, we do have the ability to secure assets from big losses. “You don’t have to sacrifice good returns for safety,” Jackson says. “It is possible to secure a large chunk of your savings and still have a good return.”
5. Create a plan for your time. While some people assume retirement will be a welcome respite, many new retirees find they have too much idle time on their hands. Sometimes leaving work creates an unexpected void that can leave new retirees depressed and anxious for something to do. “Don’t let the success of retirement be an empty victory,” says Jose Sanchez, a financial planner for Retirement Wealth Advisors in Albuquerque, New Mexico. After the initial excitement of retirement dies down, you’ll need to stay busy.
To plan a retirement that provides your life with substance, you should come up with a list of activities to dive into. Perhaps you can work on a passion project part-time, volunteer for a cause you care about or perfect a new hobby. Whatever you decide, make sure you plan activities that will give your retirement substance.
[See: 10 Ways to Increase Your Social Security Payments.]
6. Learn about Social Security and Medicare. As you approach retirement, it is important to get a handle on the type of benefits you may qualify for. Create an account at socialsecurity.gov and start to familiarize yourself with the site’s benefit calculators. “While you are there, remember to print off your benefit statement,” says Benjamin Brandt, a North Dakota financial advisor and host of the podcast Retirement Starts Today Radio. Most people no longer receive paper statements in the mail. Gather up your paperwork for pension or other employer-sponsored benefits, and learn about your Medicare options as you approach age 65. “Knowing your benefits is a crucial step to building a comprehensive retirement income plan,” Brandt says. Even if you don’t yet qualify, it’s important to know how all your retirement benefits will work together in future years.
Jeff Rose is a certified financial planner, U.S. combat veteran and the founder of GoodFinancialCents.com.
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6 Important Steps to Take Before Retirement originally appeared on usnews.com
