If you're getting ready to retire this year, it's time to take a close look at your finances and make sure you are ready to live the retirement lifestyle you've been dreaming about. As you start making your plans, make sure you do these 6 things before you retire:
#1 Create a Retirement Budget
No matter what your retirement plans are, you need to itemize each expense and figure out exactly how much you will be spending. If you're planning to travel a lot, factor that in. If you're planning to move, factor in the cost of living in the new location. Whatever your plans are, remember to also account for the higher healthcare and insurance costs that are associated with getting older.
#2 Don't Forget Taxes and Emergencies
When creating your budget, don't forget that you will be paying taxes on withdrawals you make from retirement accounts, pension payments you receive, and certain other sources of retirement income.
You should also include an item in your budget for an emergency savings fund. Putting a little aside each month just in case of emergencies means you won't need to make an extra withdrawal on a retirement account (which would lead to paying more taxes for that year). Building taxes and emergencies into your budget will save you from a lot of unpleasant surprises down the road.
#3 Make Sure Your Retirement Income Will Be Enough
Once you have a clear budget showing your anticipated monthly spending, take a look at what you currently have put away for retirement and how much you can expect to earn on interest, dividends, or any other sources of passive income your retirement fund might yield.
Given the total you have, how long can you afford to live the lifestyle you just budgeted for? If it's not going to be enough to cover your full retirement, you either need to look for ways to lower costs or ways to increase retirement savings.
#4 Understand Your Pension Details
If you access your retirement money through an employer-provided pension, you need to understand exactly how it works. In most cases, you'll be able to choose whether to receive a lump sum or monthly payments.
If you're planning to put all of it into an investment portfolio, it might make sense to request a lump sum. If you're planning on living on the pension as your primary income, taking monthly payments will help decrease the amount you ultimately pay in taxes on it.
#5 Revise Your Asset Portfolio
Now that you are approaching retirement, it's time to move your money into the safest possible investments. In general, you want assets that provide a consistent and predictable income so that you can avoid tapping into the actual principal on your retirement fund if possible. That means dividend-paying stocks, high-interest savings, rental properties that you can collect passive income from.
#6 Consolidate Your Money
If you haven't worked for the same employer throughout your career, chances are you have a few different 401(k)s, IRAs, or other retirement accounts, all in your name. If so, consolidate them all into one retirement account so that you can easily see how much you have and access your money.
Head into your retirement with zero anxiety by taking this time to get your finances and plans in order. Once you have your retirement budget in place and a clear view of how much money you have to fund your retirement, you'll be ready to start this next phase of your life!