Retirement is a big life change! With any life change comes a lot questions and concerns. If you’re starting your transition into retirement, here are 6 questions you should ask before you put in your final two weeks’ notice.
How will you spend your time?
Once you retire, you’re no longer obligated to be at a certain place at a certain time. You’re given an extra 40 hours a week to do as you please. Many retirees focus on saving and investing for retirement, forgetting the importance of planning their future lifestyle and what they will do with their free time.
Due to this lack of preparation, many retirees find themselves depressed and feeling a lack of purpose. Their job may have given them significance, socialization, and fulfillment. Now that they no longer have to “clock in and out”, it may be challenging to achieve the same sense of productive satisfaction.
So, before you retire, determine how you will spend your time. What will give you the most satisfaction and fulfillment? Here are a few ideas to inspire you:
- Try to focus on cultivating relationships with people who enjoy partaking in similar activities as you.
- Seek membership in organizations you’re passionate about.
- Start planning your bucket list vacations.
- Encourage your partner to take ballroom dance lessons with you.
- Learn a new language and then visit a city where you can practice your lingual skills.
- Start a book club with your close friends and dress up like your favorite character when you meet to discuss the book.
There are many ways to fill your time. Think of everything you’ve wanted to try but never had the opportunity. Before you know it, you will find an abundance of ways to fill your time. Remember, the more you plan and prepare in advance, the easier it will be to feel fulfilled in retirement.
How will you take care of your health care needs?
One important question to ask before you retire is, “How will I accommodate my health care needs in retirement?” Many retirees qualify for Medicare once they reach 65, which can help cover a lot of health care costs in retirement.
If you decide to enter retirement early, you will need to find another health care option. Without your employer’s coverage, you may have limited options for finding health care. If your spouse is still working, you may be eligible to join their plan.
If this is not an option, you could consider COBRA which extends your current employer plan for 18 months. Keep in mind, you will have to pay the full premium for coverage since you are no longer employed.
You can also visit HealthCare.gov to search for health insurance options. HealthCare.gov is an online market place that helps connect consumers with health care plans. This site also provides tools and resources for consumers to find the best option to fit their health care needs.
How much will it cost to sustain your lifestyle?
Many retirees assume their expenses will decrease once they reach retirement. They assume they won’t have a mortgage payment and they will have no revolving debt. For some this may be true, but for others their expenses may increase. Expenses such as gas or car maintenance, typically incurred from commuting, may decrease while travel expenses may increase.
The cost to maintain your lifestyle depends on the individual. There are many variables to consider when determining the amount of money you will need to support your lifestyle. When calculating your income requirements, try to be as realistic as possible. Include any additional travel, hobby, or leisure expenses.
Figuring out your retirement costs may be one of the most important questions to ask before you retire.
How will you replace your income?
Now that you understand how much it will cost to sustain your lifestyle in retirement, you will need to figure out how to replace your income without a paycheck. Additionally, you will need to review your assets and determine the best way to generate income while in retirement.
You may first want to review the amount of Social Security you can expect to receive once you claim your benefits. Your full retirement age can vary depending on your birth year. If you decide to take your benefits prior to reaching your full retirement age, you may get a lesser amount. However, if you prolong receiving benefits until after your full retirement age you could receive an increased amount.
You can review your potential benefits by signing up for an account at my Social Security. Your account will help you determine your current standing and if it may be beneficial to prolong taking benefits as opposed to taking them now. Keep in mind, there may be revisions to the allotted benefit amount beginning in 2037.
Once you have discovered the amount of Social Security you can expect, you will want to review your 401(k), IRA, and other retirement savings accounts. If you have a traditional 401(k) or IRA, the IRS will require you to take distributions or Required Minimum Distributions (RMD) when you reach 70 ½. If you chose to have your contributions deferred, Uncle Sam will be ready to collect.
If you have a Roth IRA, there is no requirement to take distributions, but you may want to begin to take a regular percentage to support your lifestyle. You will also want to include revenue from other assets like properties or business profits.
Calculating the distributions you should take in retirement can be confusing. It may be wise to partner with a trusted financial planner with retirement expertise who can guide you on your financial journey. A financial planner can help you determine the best distribution strategy for your specific retirement plan, and provide your best option to maximize your Social Security payout over your lifetime. Ultimately, your planner can aid you in establishing a wealth management strategy that will allow your money to continue to grow while supporting your lifestyle in retirement.
There may be too many pieces of the puzzle for you to fit together alone. A financial planner can help you assess your entire big picture and help you determine if you may need to work longer or part-time to boost your income in retirement to support your lifestyle. By working with a financial planner, you may discover you need to work a little longer before you can fire your boss.
What are the tax considerations?
In addition to helping you develop a distribution strategy to support your lifestyle, a financial planner can help you evaluate the tax implications of retirement. Your distribution strategy will need to coincide with a strong tax plan.
If your financial planner doesn’t have tax expertise, they will be able to connect you with a trusted tax professional. Working with a tax professional can help you avoid potential penalties and allow you to keep as much money in your pocket as possible.
All life changes require financial adjustments. Retiring is one of these events that may force you to make modifications to your financial situation. A tax professional can be a great resource for implementing these changes and creating the best tax plan for your future financial needs.
Are your retirement plans compatible with your partner’s?
Where will you live when you retire? What do you want to check off your bucket list? How often do you expect to travel? If you’re married, you should have these conversations prior to retirement. You need to make sure that both parties are on the same page when it comes to retirement.
If you discover you have different opinions about how to spend your golden years, you will need to figure out a plan to compromise and make each lifestyle work. For example, if one person wants to travel the world, while the other wants to simply relax and spend their days reading in a hammock, what’s the happy medium?
Could you travel once a month or maybe plan one big trip a year? Could you take some trips together and others with friends? There are plenty of ways to make and keep each party happy. It’s important to start these conversations early on so you’re better prepared for your future together.
This is also a great time to determine when each spouse will retire. It may be beneficial for one spouse to continue to work or at least work part-time to supplement some income for a while. Not only will one spouse working benefit your financial needs, but it may help the couple ease the transition to full retirement.
The bottom line
Planning for retirement can be confusing. Many retirement questions will come up when deciding when to retire. Partnering with a financial planner can help you answer some of these questions and strategize all the pieces of your retirement puzzle to help set you on a path to financial freedom. If you’re ready to take control of your financial future and create a path to increase your odds of success, please contact our team today.
Please visit our Learning Center to explore other tools and resources you can use to plan for retirement.