Plot your transition.
Will 2018 be the year you finally retire and say goodbye to your job forever? If so, the next few months will come and go faster than you think. Use that time to do these 10 things, which will help ensure a smooth transition out of the workforce.
Calculate your retirement expenses.
First, you need to know whether you can afford retirement. Joseph Roseman, managing partner of financial planning firm O’Dell, Winkfield, Roseman and Shipp in Charlotte, North Carolina, says old planning models assumed people could live on 70 percent of their preretirement income. However, he finds that most new retirees have significantly greater expenses. “For the first five years, you pay as much or more,” Roseman says. Another common mistake is calculating expenses based on current costs and failing to consider how they will change over time. “I’ve seen folks who’ve done their own projections, and they’ve forgotten things like inflation,” says Jayme Meredith, senior vice president and financial advisor with Hefren-Tillotson in Pittsburgh.
Determine your guaranteed income.
Once you know your expected expenses in retirement, determine whether they can be covered by income from pension payments and Social Security. “In our practice, we recommend 90 to 100 percent of expenses be covered by guaranteed income sources,” Roseman says. Those who don’t have enough from guaranteed sources may want to consider using a portion of their investments to buy an annuity, which provides regular, dependable payments.
Weigh retirement income choices.
Workers lucky enough to receive a traditional pension should understand their options. Opting out of survivorship benefits may provide a larger payment now, but it will leave your spouse without that income should you die first. As for Social Security, people can file for benefits as early as age 62. However, doing so will permanently reduce the monthly benefit amount. When you are ready to claim Social Security, submit your application three months before your requested start date, says John Piershale, certified financial planner with Piershale Financial Group in Crystal Lake, Illinois. “Three months gives you enough time to get your application in and make sure your first check isn’t delayed,” he says.
Pay down debt and build savings.
If you’ll be leaving your job next year, focus on eliminating debt that can drag down your retirement budget. Also consider refinancing high-interest loans or variable interest rate mortgages now. Getting bank approval may be difficult for retirees without a regular paycheck. Another priority should be setting aside extra money to boost your emergency fund. Having cash outside investments is particularly important should the market decline. In those situations, money from the emergency fund can be used to supplement income until investments rebound.
Plan for insurance coverage.
Workers who rely on employer-sponsored group coverage for insurance should be prepared for those policies to end with their employment. Some life insurance plans are portable and can be converted to private policies. Meanwhile, those younger than age 65, when Medicare begins, will need to find a new health plan. That won’t be cheap, either. “Someone retiring at 62 could easily be paying $1,000 or $1,200 a month for health care,” Meredith says.
Update legal documents.
Piershale says the most important thing people should do prior to retirement is estate planning. “You spend your whole life accumulating assets, so it’s really important,” he says. Make sure beneficiaries on insurance and investment accounts are correct and that property is titled correctly. Now is also a good time to create a will and name a durable power of attorney and health care designee if you haven’t already.
Review investments.
Before retirement, reevaluate where your money is being invested. Meredith notes that people are shifting from the accumulation phase of life to the distribution phase, which means preserving money for a long retirement becomes paramount. However, transferring all your assets to conservative cash or bond funds can be a mistake. Investments need to grow at least enough to cover the cost of inflation. “There is a certain amount of risk you need to maintain your lifestyle,” Piershale says. A financial advisor can help people determine the proper amount of risk required to get the return needed to pay for retirement goals.
Use vacation time.
Roseman has this advice for pre-retirees who have a large stockpile of vacation time: Use it. “There’s a lot of stuff out there,” he says. “Go see it.” Those who plan to retire elsewhere in the country can use these trips to scout out potential new homes as well.
Tell your boss … at the right time.
You may know the exact date you’ll retire next year, but there’s no reason to tell anyone at work just yet. “In today’s at-will employment, if you tell your boss you’re retiring in 12 months, you might get a call in one month saying we’ll meet you at the door with a box,” Meredith says. Workers in low-level jobs can probably wait until a month before they retire to tell their employer, while those in technical or complex positions should provide more lead time. Ultimately, Meredith says the right time to tell your boss will depend largely on your relationship with your employer as well as the type of work you perform.
Make a plan for filling your time.
Finally, develop a plan for what to do with your newfound free time. “When you retire, you have six Saturdays and a Sunday,” Roseman says. Pursuing personal passions, cultivating hobbies and volunteering for favorite charities can all be part of a fulfilling retirement.
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Your 10-Step Checklist to Retire in 2018 originally appeared on usnews.com
