Categories: Personal finance

Getting ready for retirement

Getting ready for retirement can be both stressful and satisfying. As you get more and more ready for retirement, anxiety and stress over this important step begin to disappear.

It’s not as hard as some might think to get ready for retirement. Just follow a plan with these simple steps and you’ll be on your way.

Write Down What Retirement Looks Like for You

What is it you want to do in retirement? How will you keep from getting bored? Maybe you want to travel, pick up new hobbies, work for a charity, or work part time. Some people find that they won’t have enough to do in retirement once they begin really thinking about it. Others find that they have too many things they want to do. The first step in figuring out whether you’ll be bored or overwhelmed is documenting your plans.

Run Retirement Projections for Your Money

Do you even know if you can retire when you want, or are you just guessing? If you’re guessing then you need to have a retirement plan built for you right away. You can either hire a financial planner to do this for you or use do-it-yourself retirement planning software such as WealthTrace. The benefits of building your own plan are a) you save a lot of money and b) you can run your own retirement planning scenarios whenever you want. 

A retirement plan can help you figure out when you can retire, how much you can spend each year in retirement, and what your risks are. A good retirement plan can show you if your investment portfolio is diversified enough and how susceptible it is to risks such as higher inflation, higher taxes, or a recession.

Having a comprehensive retirement plan is probably the most important step you need to take before you commit to a retirement date. If you don’t have one in place, you are flirting with running out of money in retirement, which can be a life-altering event.

How is Your Health?

Even when on Medicare, the costs of medical care can be very high. There are payments for Medicare Part B, which increases with income, Medigap, which covers costs that are not covered by basic Medicare, and Medicare Part D for prescription drugs. The average couple pays about $15,000 per year in total medical costs once on Medicare. But these costs vary widely depending on how healthy people are.

It is important to understand your health situation before retirement so you can forecast what your medical costs will be and then plan for it.

Prepare Your Budget

This is really a part of the overall retirement plan discussed earlier. However, budgeting is something that should be done frequently. Either use a budgeting app or document your expenses in a spreadsheet. This way you know the expenses you can plug into your retirement plan when you project your retirement situation.

Understand Social Security

You can take Social Security as early as age 62. But normally this is a bad idea because your Social Security benefits will go down as much as 40% compared to if you wait until age 67, which is the Full Retirement Age (FRA) for most people.

Many people even delay until age 70 to maximize these payments. Waiting until age 70 can mean receiving about 25% more compared to taking Social Security at age 67. But this only makes sense if you believe you will live past age 80 since you will not receive any payments until you turn 70.

Make Sure Your Asset are Diversified

There are horror stories of older couples invested 100% in risky tech stocks that had to go back to work when there was a major recession and stock market downturn. Once retired make sure you are diversified among stocks, bonds, and even real estate. Within the stock category it is important to also diversify among growth stocks, value stocks, and solid dividend payers for retirement income.

See if you can Decrease Your Expenses

Most of us can cut back on expenses if we really try. Many people don’t even know where all of their money is going. So download and write down all of your spending transactions for 3 months. Look at where most of your money is going. Perhaps you are spending money on apps and streaming channels you don’t even use. Maybe you are dining out a lot and can cut back there by cooking more. The more you decrease your expenses, the sooner you can retire. 

Another big expense that many people have and don’t realize is expenses on their mutual funds and Exchange Traded Funds (ETFs). If you are paying more that 0.2% for a fund it is likely too high. Think about moving into low-cost Vanguard funds instead. It can save you thousands of dollars over time.

Some people plan on cutting their expenses by moving to a different state. This can mean lower real estate costs and lower taxes. You can run this type of scenario in a retirement plan in addition to the other scenarios already discussed.

Keep Your Retirement Plan Updated

It is not a good idea to constantly look at your investment values. The same applies to your retirement plan. Don’t wring your hands looking over it every day. But do make sure it is updated at least monthly. Keep an eye on your financial projections and track if these projections are getting better or worse. If they get worse, is it due to spending? If so you can look at your budget and figure out what happened. 

Stick to these ideas and you will have a wonderful retirement without the anxiety that many people have when it comes to finances.


Since 2005

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