What are your retirement goals? Have you thought about what your retirement future will look like 10, 20, or 30 years from now? If not, it's never too early to start planning for your retirement. Imagine that your retirement will be a world of new adventures and experiences to keep you active and in the game. Here are a few tips to prepare for your financial wellness in retirement.
1. Envision Your Retirement
Envisioning your retirement can consist of imagining and writing down how you will enjoy your retirement future. Will you spend time with friends and family? Will you take up a new craft that you've been interested in for years? Will you travel or spend time at home gardening? Whatever you will be interested in, keeping a log of the top five things that you will accomplish in retirement will help you enjoy your first day and beyond. You won't have to punch a clock any longer, so this will be your time to enjoy your 365-day annual weekends.
See my feature in the Retirement Planning Guide.
2. Manage Your Cash Flow
When you retire, you may be on a fixed income, and the annual increases you may be used to receiving will stop. So, it's essential to manage your cash flow in retirement. If you are 40 today, the Social Security Administration has found that you may live to be at least 90. If you are looking to retire at 65, you will spend about 25 years in retirement. That's why managing your fixed and variable expenses can help ensure you have enough money in retirement. Your fixed expenses can consist of your food, mortgage, utilities, and healthcare. Your variable expenses can consist of vacations, hobbies, gifts, and charitable giving. Identify now what expenses you may have in retirement and the expected costs of each.
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3. Will You Need To Replace Your Health Insurance?
What do you do about health insurance if you are eligible for Medicare? You may have to obtain coverage through your spouse's employer, find an individual health insurance policy, or enroll in COBRA. An article by Fidelity has found that a 65-year old retired couple could spend up to $285,000 on health care expenses in retirement. It's essential to identify now what benefits you can enroll in when you decide to retire and how you can become eligible. For example, some employers require that you be enrolled in their healthcare plan before retirement to maintain your eligibility to stay on their plan.
4. Determine The Income You Will Need
Once you envision your retirement and identify the fixed and variable expenses, you can determine how much you will need.
A couple of factors to consider are:
Your retirement age and your life expectancy
Your eligibility for Social Security benefits and the age you will elect them
The amount of all of your retirement income sources
The rate of inflation of your retirement years
Income tax rates
Your healthcare needs or the needs of your significant other or dependents
See my feature in How To Make Yourself a Retirement Millionaire.
5. Identify Your Income Sources
Where will your income come from in retirement, and how much will it be? You may be eligible for social security benefits at the time of your retirement in addition to your retirement income. Will you be eligible to withdraw funds from an IRA, 401(k), company-funded defined benefit plan, with or without tax consequences at retirement? Are other benefits available such as a military retirement or disability income? And, how much money do you have in savings? Identifying your retirement income sources and the tax consequences can help you determine which sources to use first.
6. Develop a Financial Support Team
On your journey to preparing for financial wellness in retirement, it's vital to develop a trusted financial team to help you successfully navigate your retirement. A financial professional can help answer any questions relating to your financial wellness and help you create a household budget, and recommend strategies for your retirement income. A tax advisor can guide you in choosing the best options for collecting your retirement income and any tax implications of your financial decisions. In addition, an estate attorney can help you develop estate planning strategies for your heirs.
Whether you value tranquility, adventure, culture, or community in retirement, coming up with a plan today can help guide your decisions in retirement and beyond. So, catch up on that needed R&R, hike the trails, travel, or volunteer the 10,000 plus days of your retirement away with a secure financial plan in mind.