How am I going to pay for my retirement? This is one of the first questions that comes to mind when thinking about retiring. And while funding retirement is essential, there are other aspects of this new life to consider. Leaving your job will disrupt your daily routine and has the ability to introduce a second act where you have more control over both your time and money.
Approximately 10,000 Boomers a day are reaching retirement age. This reality has left some scrambling to get things in order, while others are able to coast into this new adventure because they are prepared for this achievement.
Here are 5 things that you can do today that will help you have a more enjoyable retirement when you decide it’s time to leave your employment for the next chapter of your life.
1) Be prepared for a new routine. Work provides a lot of structure to your life. You have a set place to be 5 days a week. The boss dictates when and where you will spend the bulk of your time. Leaving that can result in feelings of loss, including a loss of security (reliable paycheck) and a loss of identity. You will no longer be the banker, electrician, manager or programmer. But now, you have the opportunity to reinvent yourself with time to do what you love instead of doing what you must.
Having a plan to stay busy will help you transition if you plan to leave work with the traditional retirementwhere you are working full time one day and retired the next. Taking up a new hobby or finding volunteer opportunities is one way to fill your days. Travel or spending more time with grandkids and family is another. Once you have control over your time, how will you write the rest of your story? Most retirees find that sleeping until noon or rocking on the porch swing all day does not lead to a very satisfying retirement. Longer life and better health have opened new doors ofopportunity and to what retirement looks like for seniors.
2) Phased in retirement is becoming a more common approach to retirement and many companies are embracing the trend by providing part time opportunities. Some of this is due to lack of financial resources on the part of retirees, or perhaps it is because you love what you do and want to stay in the industry, without working so many hours. With more seniors in better health and looking at potentially 20 years or more of retirement, leaving the job at 65 is not always the goal. Those who do retire through the traditional route, taking on a part time job doing something you enjoy is also common. Not only does this maintain an income stream but it helps fill your days with meaningful activity. This option can provide a good balance between time to enjoy your hobbies and family, while staying busy and reducing immediate dependence on retirement savings.
3) Address physical health. One of the biggest unknowns throughout retirement is your health. This will determine what you are able to do. If your health declines you may no longer be able to work or travel as you had planned. The home you live in may no longer be able to accommodate your physical needs. With the rapid advancement in medicine, life expectancy is rising and may enable you to live longer than any previous generation. However, some entering retirement have health concerns that need to be taken into account.
Health issues can be addressed with proper insurance and having contingency plans in place. Maybe you need to downsize your home so it is easier to maintain. Having a home with fewer steps and a downstairs bedroom may allow you to remain in your home for a longer period of time. In addition to health insurance, long term care insurance should be considered depending on your circumstances.
4) Communication with spouse and family members. Not all couples retire at the same time, however this life change typically means spending more time with your spouse and loved ones. Many couples are not used to spending so much time together and it takes a period of adjustment to get used to these changes. When you are busy working and raising kids the conversations tend to revolve around them. Now you may find you have more time together with nothing to say.
Beyond new daily patterns with your spouse, communication about long term plans should be discussed with other pertinent family members. This might include technical details on how you will be spending your time, but should also include contingency plans if retirement doesn’t go as planned. What happens if you become ill or your health declines? Long term aging strategies will set your mind at ease as well as putting everyone on the same page as to how you would like your needs to be addressed.
5) Put your financial house in order. Thriving in retirement will be determined by your financial well-being. There are three key areas that need to be addressed so you are able to make the most out of your retirement years.
a. First: What income streams do you have access to? This might be in the form of social security, work pensions, immediate annuities, rental income, royalties or other income that will be available on a regular and consistent basis. Is that income adjusted for inflation? Consider how much income you need to live and compare that to your income streams. The shortfall will need to be supplemented with retirement accounts or through reduction in monthly costs.
b. Second: What are your debt levels? The more debt you are carrying the higher income you must have in order to keep the bills paid. This may require a lifestyle change before retirement to reduce debt and provide a better long term outlook.
Restructuring payments or refinancing may reduce monthly payments, but will extend payments over a longer period of time and result in paying more for the debt. Paying off debt with retirement funds can have dire consequences because you no longer have access to your nest egg. Downsizing your home might reduce the existing mortgage balance and payments leaving you with lower monthly retirement needs. Paying off or negotiating credit card debt can provide immediate relief along with long term financial stability.
c. Third: What is the size of your nest egg? This should include an emergency fund, retirement accounts or other savings and investments that can either be converted to income streams or are available for withdrawal as needed.
The amount needed in your retirement accounts is largely dependent on the answers to the first two questions. The lower your overall debt and the higher your guaranteed streams of income, the less you will be required to have in the form of independent funds dedicated for retirement expenses.
Retirement can be the best time of your life, if you have planned well and created activities and goals you’d like to accomplish after you leave your employment. What will your retirement picture look like?