Preparing for Retirement
For those approaching retirement, there are many choices to make and the time is now. Retirement is not simply about stopping work; it’s also about ensuring that you’re financially prepared to move into this next phase of your life.
There are many aspects to consider and covering them all here in a short article is impossible. Although not a comprehensive list by any means, here are some key points to consider and get the conversation started:
1. ) What do you want your retirement to look like? Decide how you want to plan your retirement and put together a written plan to show how you intend to pay for it. Putting your plans down in writing will help make sure that you’ve thought of everything and will also help you to review and keep track of your progress.
2.) Know the key risks to retirement income. Inflation can hurt retirees more than any other risk – a 2% inflation rate will reduce purchasing power by 40% in 25 years. Out of pocket health care costs can seriously erode retirement savings. Taking out too much money and/or outliving your savings can have serious repercussions.
3.) Planning to work in your retirement is not a retirement plan. You should only plan to continue working in your retirement because you enjoy doing so and not because you need to. There are too many people that assume they can just keep working but the reality is that your future health may prevent you from doing so. If this happens, what is your backup plan?
4.) Set realistic expectations for your future income needs. Don’t assume that your living expenses will be a lot lower in retirement. Although you may cut out some work related expenses like gas and work clothes, you may spend more on travel, entertainment, hobbies and health insurance.
5.) Decide how to receive money from your pension plan. Many pension plans will offer your several options when you elect to retire. It is very important to fully understand these different options so that you select the one that’s right for you. This decision should be made with the assistance of a financial professional who fully understands and can explain the pros and cons of each choice.
6.) Don’t rely solely on your home. A house is not a retirement savings account. Downsizing can be complicated and you may find that you can’t sell at the right time or price you expected. Plus, you still need somewhere to live and many retirees find that a smaller home or condo carries much of the same living costs as their larger home did before.
Planning for your upcoming retirement is a major step that should not be taken lightly. Professional financial advice can greatly improve your chances of having the retirement you want and deserve. Don’t wait until your retirement date to start getting your plan together – the earlier you start, the more prepared you will be!