Retiring is a big life change that can impact your finances many ways.
If you’re planning to hang up your hat within the next twelve months, consider completing these critical tasks before you do to ensure you can head into your golden years with confidence.
Evaluate your savings
To start, check your finances to assess how much you have currently saved and gauge whether you can reach your target amount in a year. For example, if you plan to retire at sixty-seven, you’d ideally have at least ten times your current salary in savings by then. And the earlier you leave the workforce, the more you may likely need. If you feel you may not have enough, consider retiring later, cutting back on your current spending now, or picking up a side job so you can save more.
Plan for health care
If you retire before sixty-five, you won’t be entitled to Medicare yet, so you’ll have to consider other health-care insurance options. If your spouse is still working, you could enroll in their plan, or you could get COBRA insurance through your last employer. (Doing so may be costly, though, and you’ll only be able to have it for up to eighteen months.) Another avenue is to visit HealthCare.gov, the health-insurance marketplace created under the Affordable Care Act, to find a plan there. Most US citizens or nationals are eligible for insurance through the ACA.
Now that you’re closing on retirement, you’ll be better able to determine how much you may spend a month in retirement on necessities like food, medical expenses, housing, transportation, and utilities. Be sure to factor in how much you expect to spend on extras, such as subscriptions and travel. Also consider how much debt you have, such as for your mortgage, credit cards, or car loan. These payments can eat up a big chunk of your monthly income in retirement.
If you find that your expected expenses seem high compared to how much you think you’ll have saved, look for ways to reduce them, such as by paying down any substantial debt, downsizing, becoming a one-car household, or relocating to a geographical area with lower housing prices and taxes. For example, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don’t collect income tax—including on withdrawals from pension and 401(k) accounts. You could also consider moving closer to your immediate family to reduce travel costs.
Decide when to collect social security
You can start collecting social security at sixty-two, but you might be better off postponing doing so until you’re at least sixty-seven—most people aren’t entitled to all their benefits until then. If your budget allows it, consider waiting even longer because you can collect an extra 8 percent each year you wait, up to 124 percent total at the maximum age of seventy. Use the Social Security Quick Calculator to estimate how much you might receive a year, or create or log into your Social Security account at SSA.gov to determine the precise amount.
As you go through this preparation process, gather any information relevant to your retirement finances in a spreadsheet or binder so it’ll be readily accessible when you need it. Be sure to list your savings, 401(k) and other investment accounts, and essential contact information, such as for your health-care plan and your financial advisor.
If your calculations reveal you can retire in a year, congratulations! Even if your numbers look on track, be sure to consult your financial advisor to confirm.