As you approach retirement, it’s important to take inventory to make certain all of the necessary arrangements are made. Once you make the big leap, it’s too late for a do-over. You need a checklist, and what follows is a good start.
The best-case scenario is to be debt-free when you enter retirement. Debt is a necessary evil when you are young and first starting out, but by the time you retire you should have outgrown it. Loan payments are not something retirees should be dealing with.
The biggest favor you will ever do yourself is to get a 15-year mortgage. You pay off your mortgage in half the time but the payments are not twice as much. If you already have a 30-year mortgage, you can achieve the same result by paying it off at the higher 15-year rate.*
Another component to being debt-free is to put car payments in the rearview mirror. When you pay off the vehicle that you currently own, keep making car payments, only make them to yourself. You can put the money in a savings account and over time you will accumulate enough to purchase your next vehicle. Keep making car payments to yourself in this manner and you will never have to make a real car payment again.
What’s the difference? This puts you on the receiving end of interest rather than the paying end. Plus, that money in the bank can serve as part of an emergency fund to help bail you out when life deals you unexpected circumstances.
When you have many years left until retirement you can afford a certain degree of risk in your investment strategy. You have time to recover if things go south. That is no longer the case once you retire. You need to minimize investment risk in retirement as much as possible. Those high-flying stocks that propelled your portfolio to new heights need to be replaced with slow and steady investments. Think goodbye Tesla, hello Proctor & Gamble.
Adjustments need to be made in terms of asset classes, too. During periods of high growth, chances are your portfolio doesn’t have a bond in sight. A more conservative approach is a mix of stocks and bonds. This lessens the chance that you will be wiped out when the next market crash hits.
Retiring is a little like traveling to Mars. If there’s not enough fuel in the tank, you’re going to get stuck there. Similarly, if you retire with too little savings, by the time you find out it may be too late. You may be too old and feeble to start working again.
Retirement is too important to guess how much money you need, and relying on rules of thumb is a fool’s errand. Free online calculators use rules of thumb and they all ask the same three questions: what’s your current age, income, and retirement savings. They don’t ask if you will still have a mortgage when you retire or if you pay state income taxes. They don’t ask about your living expenses, tax filing status, pensions, annuities, life insurance and so much more.
You need to sit down with a financial advisor or avail yourself to sophisticated retirement planning software that can analyze your situation and determine how much retirement savings you really need.
It’s important to enroll in Medicare when you turn 65 years of age. Open enrollment is held each year from October 15 to December 7. There is a lot to Medicare in terms of deciding about supplemental coverage and other various options. For more information, check out our article entitled Medicare Explained.
An end-of-life plan includes a your last will and testament, medical power of attorney, and account-specific information to aid survivors in carrying on after you’re gone. A will designates who you want to oversee the disposition of your property as well as any specific instructions regarding who should get what. A medical power of attorney indicates who may make medical decisions for you in the event you are no longer able to do so. Specific account information should include securely-stored logon credentials for retirement accounts, bank accounts, and life insurance policies.
Who knew retirement could be so much work? It might seem overwhelming, but time spent planning for retirement is time well spent. After all, it’s the last 20% of your life. It can be a hoot or something less, the choice is yours.
* Unless your mortgage has restrictions; check with your mortgage provider.Photo credit: Pixabay