You’re looking forward to the day you can punch out of work one final time, grab your already-packed suitcase, and head on out the door for your dream vacation. You know you’re ready to retire—but are your finances? Here are five signs that your financial plan can support your retirement dreams.
1. You Have Social Security Figured Out
Social Security benefits will probably play a significant role in your retirement income. It’s important to understand the impact those decisions can have on you as well as your spouse should you die before they do.
Your full retirement age (FRA) will land between age 66 and 67, depending on your birth year. FRA is the point that you receive 100% of your benefit amount based on your work history. You could claim as early as age 62, but your monthly amount would be reduced for the rest of your life. You could also postpone to age 70 and receive up to 132% of your monthly benefit.
Your decision should be personalized to your situation, including income needs and longevity expectations.
2. Your Retirement Budget Is Ready to Go
Our fee-only financial planning firm in Plantation, Florida, helps create an ongoing retirement budget based on each client’s needs and goals. We generally recommend that people set up a budget at least a year before they retire.
Part of creating that budget is testing it, which means living on it as though you have already retired. By trying it out in advance, you help ensure your retirement budget is sustainable.
If the numbers don’t work and you feel like you’re skimping to get by, then you have time to adjust. Consider focusing on high-interest debt like your credit card, saving more into a retirement account such as your 401(k) or IRA, or adjusting your portfolio allocation to better align your risk and return needs. You may also want to retire later or work part-time in retirement.
Whatever your decisions, you’ve given yourself the gift of time to create a retirement budget that allows you to thrive.
3. You Have a Plan for Health Care Costs
Another sign that you’re ready to retire is knowing how you will pay for health care.
It can be dismaying to realize that couples retiring in 2021 can expect to spend $300,000 in health care and medical expenses in retirement, according to the latest numbers from Fidelity’s Retiree Health Care Cost Estimate. The amount for single women is $157,000, and for single men, it’s $143,000.
Having a plan to pay those costs is essential. Your strategy should also include long-term care costs since Medicare generally does not cover them. If you’re unsure how to cover potential expenses, consider talking with a fiduciary financial planner who will advise you based on your personal situation.
As part of your planning, take the time to understand your Medicare options. In most cases, you’ll become eligible for Medicare at age 65. Since Medicare can be complicated, doing your research ahead of time and knowing which options work best for your health and finances can provide peace of mind.
If you’re retiring early, you’ll want a health coverage plan for the period before Medicare eligibility. If you’re married, your spouse may be able to add you to their employer-provided health plan. Or you may look into COBRA coverage or a policy through the health insurance marketplace.
4. You and Your Partner Have Discussed Retirement Expectations
If you have a significant other, you will want to be on the same page about retirement. All topics need to be on the table, including lifestyle, together vs. alone time, daily life, day-to-day expenses, big dreams and how they will be funded, whether you’ll stay in place or relocate, and so on.
From our experience, these discussions can create shared expectations and increase harmony in retirement life. Failing to talk about them could end up hurting both your finances and your relationship. So make these ongoing conversations a “date” so that you can both look forward to retiring.
5. You Have a Life to Go to, Post-Career
This sign may not necessarily be financial, but it’s important. You’re about to make one of the most significant transitions of your life. Although exciting, it can also be disconcerting, especially if you don’t know what to do with all that extra time.
Start making plans now. What will your daily life look like? Who are the people you will see regularly? What activities will you share? Do you want to go back to school? Volunteer? Consult?
Whether your dreams are humble or extravagant, you’ll want to set a vision in place for retirement that you can start fulfilling once you really do clock out of work one last time.
Are You Prepared?
If you hesitated at any of the above signs, that could be a red flag that you’re not ready as you want to be. You deserve to enter retirement with excitement and confidence, and that means knowing your finances are prepared to sustain your retirement lifestyle.
If you’re concerned that your savings fall short, assess what you need to do. You may want to consider working with a financial advisor with expertise in retirement planning. We generally recommend a fiduciary, fee-only financial advisor so you know their advice is always in your best interest.
Schedule a complimentary consultation with one of our fee-only financial planners to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.