Thirty-one percent of non-retired respondents reported having no retirement savings or pension, including 19% of those ages 55 to 64 according to a recent survey by the Federal Reserve. Those are sobering statistics considering most individuals desire to retire in the future.
When Is Your Retirement Planned?
Is that day soon? If so, there are many different aspects of your retirement for which to plan. When deciding when to retire, some items that you should consider are the following:
- Retirement Income Sources. You will still have many expenses once your paychecks stop coming, so consider whether you will be receiving income during retirement. Are you eligible for a pension? If so, will you take a lump sum or annuity? Do you qualify for social security benefits? When is the best time for you to claim social security, and how much will the annual amount be? Will you go back to work? Carefully consider whether your retirement income plus your retirement savings can cover your expenses for the rest of your life.
- Retirement Savings. Many individuals do not have adequate retirement income to cover all of their expenses for the rest of their lives, so it is vital to evaluate whether your retirement savings can sustain your needs. It is also beneficial to consider whether you can withstand large changes in the market. A financial planner will be able to help you assess this.
- A Sustainable Spending Rate. Tracking your annual expenses has many benefits, one of which is that you can project what future spending might look like. It’s important to have a realistic idea of what your annual expenses will be during retirement and recognize that your spending rate might change. Your retirement spending might be higher than your current spending level if you plan on spending more time travelling, golfing and eating at restaurants. Retirement spending might decrease if your health is declining and you are unable to get out to do activities, while at the same time your healthcare expenses would likely to increase. Also, be sure to factor in inflation. This is another item that would benefit from a financial plan.
- Health Insurance Coverage. No matter what age you hope to retire, health insurance is important consider since it is a large annual expense. Employers are often a source of lower cost health insurance coverage, so if you are retiring before 65, you should research whether you can keep your employer-sponsored health insurance plan or whether you will need to purchase your own policy. Pre-65 you may be eligible for the premium assistance tax credit if income is significantly less than when you were working. If you are age 65 or older, you are eligible for Medicare, but there are still many options to be chosen with this coverage. Careful tax planning may be necessary to assess which options are best for you.
- Time Management. How do you plan on spending your time while retired? You will have considerably more free time to fill. Do you plan to spend more time with family and friends? Do you plan on going back to work or volunteering your time?
- Emotional Readiness. During long work weeks, retirement may seem like the ultimate relief to all of life’s troubles. Did you know that some people find retirement to be a difficult transition? Work gives a sense of purpose for many individuals. And earning money often gives a feeling of financial security. Large changes in life, such as retirement, can be difficult to adjust to emotionally. When the time comes, be sure to evaluate whether or not you are emotionally ready to make this huge life adjustment.
Many of these factors are difficult to evaluate and can be much clearer with the help of a professional financial planner. Consider consulting a fee-only financial advisor to help you create a comprehensive financial plan to prepare for retirement and evaluate the best time to retire.
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