One of the most important and difficult financial decisions most people will make is when to retire.
As most investors know, it is critical to be financially secure to do so. But once you make the giant leap into retirement, the following decision to consider is what to do next — not only from a lifestyle perspective, but also from a financial standpoint. Many people often underestimate the ensuing money management questions about how to handle their finances if they have a surplus of assets to live on.
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To help guide potential and upcoming retirees, here are a few steps to help you responsibly and effectively enjoy the wealth you have accumulated and achieve the stress-free retirement that you’ve always imagined.
Calculate your monthly income and create a budget. It is crucial to have an income and correlating budget that aligns with your desired lifestyle. Factor in how much you want to spend on housing (if you don’t already own a home, or if you want to purchase a second home), daily living costs, vacations, and other expenses that may be important to you, such as paying for your grandchildren’s education or contributing more to charity. Also think about whether or not you’ll want to pick up a part-time job to keep you active or pursue a new interest, which would provide additional income. Finally, consider that life expectancy is getting longer, so make sure to factor in what will hopefully be a long and healthy life.
Wait to claim your Social Security. As most investors understand, Social Security alone does not provide enough money for a comfortable retirement. But regardless of your income, and especially if you have a considerable amount of assets, you should wait as long as possible to claim it rather than doing so as soon as you’re technically able (at age 62), as payments will increase 8 percent each year you delay until age 70. Work with your financial advisor to calculate the best timing for you to file for Social Security, and only do so earlier as a last resort.
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Oversee estate planning. If you’ve reached retirement, you should have already begun preparing your estate with a will or trust. Review all of your estate planning documents periodically with your children and other relevant family members so that your wishes are communicated, and your heirs know where your assets and accounts are located. These conversations are not always easy and as a result often get pushed to the back burner, but the topics of estate planning and transfer of wealth are two of the most important aspects of your financial picture. Make sure you — and your family members — are prepared for the inevitable throughout your retired years.
Pass on your financial knowledge to your family. You’ve been financially successful, so now is the time to pass along saving and investment principles to your children or grandchildren. Discussing key principles such as starting an emergency fund, contributing to a retirement plan and paying off debts quickly will help encourage them to follow in your footsteps and start building their own successful financial future. Even if you are contributing to their 529 plan for college or creating a trust fund for them, they will someday appreciate the financial wisdom you imparted and hopefully incorporate it into their own financial plan.
Enjoy yourself. Now is the time to (responsibly) use the money you’ve worked so hard to earn, save and invest over your lifetime. Envision what happiness in retirement means to you (connection, exploration, or knowledge, for example), and then get started. Whether it’s spending time with family and friends, pursuing a passion project, volunteering with an organization you care about or traveling the world, you’ll likely soon find that you’re being rewarded for your diligence and dedication throughout the years.
[See: 9 Psychological Biases That Hurt Investors.]
It never hurts to speak with your financial advisor to make certain you are considering the many factors that play into a retirement strategy. Even if you have worked hard to assure that your retirement savings have extra padding, taking these steps will ensure that you’re on your way to many years of relaxation and enjoyment. You’ve earned it!
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5 Tips for the New Retiree originally appeared on usnews.com
