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PLANNING POINTS: Are you prepared for retirement?
Clarify key questions on money, emotions, future plans
Retirement is a goal everyone has in their mind at one point or another. It is not a decision to be taken lightly, and many factors must be considered when actually making the transition.
While age still is an important factor in deciding to retire, identifying your goals in everyday life and creating a plan to achieve them will help determine if you’re ready to retire.
Here are three important markers to cross before you jump into retirement.
You are financially ready.
The most common question I hear from clients is, “How much do I need to retire?” While there’s no magic number to hit, a few important key checkpoints are:
- Identifying your realistic expenses and having an overall awareness of them. Many times when putting together a wealth plan for clients and we ask how much are you spending each month, many clients who are preparing to retire do not have a good idea what that number is. It’s not so much of having a budget but the awareness of what your monthly budget or expenses are. It is also important to identify unplanned or larger expenditures above and beyond the monthly living expenses. This includes remodeling your home or a vacation you always wanted to take in addition to having an emergency fund for unplanned expenses.
- Ensuring your debts are paid or in a manageable state where there is a known point in the future where they will be eliminated. You don’t necessarily need to pay off a fixed-rate mortgage before you retire, but you should try to reduce or eliminate credit card balances and any other loans that are charging you interest.
- Identifying a reasonable withdrawal rate from your investments is one of the most critical items of retirement. Withdrawal rates are directly correlated with the age of retirement.
- Making sure your age, retirement accounts and Social Security plan are all in-sync. If you’re planning on retiring early, be sure that your retirement accounts won’t charge you any early withdrawal penalties for which you’re not prepared. Also keep in mind that the earlier you take Social Security, the smaller your payments will be. Can you afford to live without Social Security until age 70 to maximize your benefits?
- Making sure you and your spouse have a health care plan. Medicare insures individuals, not families. If only the retiree is 65, the younger spouse will need to buy or have a health care plan elsewhere.
You’re emotionally ready.
We spend so much of our lives working that our jobs become a large part of our identities. Rediscovering who we are once we stop working can be a major retirement challenge. To prepare for this emotional transition:
- Talk to your spouse ahead of time. Don’t wait until your last day of work to discuss how both of you feel about retirement. What do each of you imagine life will be like? What are the things you’re excited to do? What are you afraid of? What can each of you do to make this new phase of life as fulfilling as possible?
- Make a list. What are the things you’re passionate about? Something you’ve always wished you knew more about? A skill you’d like to develop? A cause that’s important to you? An ambitious business idea that was too ambitious for your former employer?
- Check that your estate plan is in order. It’s understandable that many people avoid this part of their retirement planning. But putting together a legacy that could impact your family and community for generations can have tremendous emotional benefits. The peace of mind that comes from knowing the people you care about are taken care of can empower you to worry a little less and enjoy your retirement more.
You’re ready to do new things.
Ideally, the financial piece of this conversation should make you feel free enough to create a new retirement schedule based on the emotional piece. Plan your days around the people and passions that get you out of bed in the morning. Some ideas:
- Work at something you love. Take a part-time job at a company that interests you. Turn that crazy idea you couldn’t sell to your old boss into your own business. Consult. Teach. Volunteer.
- Keep learning. Pursue your passions and interests through an online course. Learn some basic web design so you can showcase your photography portfolio or create an online store for your crafts. Sign up for cooking classes and get some new meals in your weekly rotation.
- Get better at having fun. What’s the best way to lower your handicap or perfect your backhand? Take lessons from a pro. The second best? Organize weekly games with friends and family.
- Travel. Planning a big vacation can be a fun project for couples to do to together. And while you’re looking forward to that dream trip, take a few weekend trips out of town. Stay at the new bed-and-breakfast you keep hearing about. Visit your grandkids. Go on the road with a favorite sports team and enjoy the local flavor in a different city.
If you’re nearing retirement and struggling with these issues, developing a plan and thinking “outside-the-box” when it comes to what makes you happy is a great way to clarify what’s important to you.
Pete Alepra is managing director-financial adviser with RBC Wealth Management. Comments: (319) 368-7023; peter.alepra@rbc.com. Investment and insurance products offered through RBC are not insured by the FDIC or any federal agency, are not deposits or guaranteed by a bank and are subject to investment risks.
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