AdviceIQ: 10 key pre-retirement steps
Tom Orecchio, AdviceIQ
Retirement takes a lot of planning and decades of preparation. You’ve gathered assets, set up a home and perhaps raised children. Now is the time to enjoy all you have achieved. But as you move from the world of work into retirement, here are 10 key steps to take first:
1. Prepare a budget that takes into consideration typical monthly costs and your plan for big potential expenses (e.g., travel, home renovations, moving).
2. Meet with a financial planner to determine if you are really financially ready to retire. There are some financial advisors who offer consulting agreements (i.e., hourly rate) if you do not seek comprehensive wealth management services. Whether you want only investment advice or more comprehensive wealth management, a second opinion can help give you peace of mind. Research the advisor’s qualifications. If you are seeking a fee-only advisor, check out the National Association of Financial Advisors (NAPFA) website.
3. Assess your emergency fund. For a working couple or a couple where one is working and one is retired, we typically suggest a fund of cash assets aimed to last 12 to 18 months. For a couple where both are retired, we suggest two full years of cash available to fund living expenses. That helps you avoid having to sell investments to raise cash in a down market.
4. Figure out what you will do for health insurance once you retire. Will you seek private insurance or do you qualify for Medicare (available once you turn 65)? Become well versed on your options and how to get benefits. Medicare does not include dental or vision coverage.
5. Start considering where you want to live and whether downsizing – moving to a smaller home – is an appropriate option for you. Get your house appraised; knowing that value could give you a sense of comfort. Most people’s largest investment is their home.
6. Re-evaluate your estate’s planning documents and make sure they are in order.
7. Examine your current risk management policies. Make sure you don’t let your insurance policies lapse. Weigh your needs and costs. If you work part-time or do consulting work during your retirement, check to see what potential liabilities you have and whether you can insure against them.
8. Meet with your accountant to talk about estimated taxes in light of your retirement. What will be your expected new income bracket and how will that affect you?
9. Before you leave your job, find out what sort of benefits in retirement your employer provides. Meet with your human resources manager to make sure you’re aware of all your options. Anything that could put more money in your pocket can be helpful as you enter into retirement.
10. Decide on a Social Security strategy. You can start receiving reduced benefits at 62. You will get more by waiting until 66 (for the current crop of baby boomers) and receive the most by collecting at 70. Consider seeking professional assistance before you elect a benefit payout option.