COVID-19 certainly threw many retirement plans for a loop. It’s not just the pandemic, but the financial uncertainty left in its wake that has many people rethinking their retirement goals and restarting planning for retirement.
Suppose you’re planning to retire within the next ten years, or at least you were before the pandemic struck. In that case, you are probably experiencing some mix of excitement over the possibilities and worry about the risks.
Here are a few areas you’ll want to look at to make sure you’re prepared, financially, for the realities of retirement. Take the steps below to check the course of your retirement journey and make any adjustments if needed.
REVIEW CURRENT LIVING EXPENSES
Be completely honest and rather meticulous in your assessment of your current living expenses. Thoroughly track your living expenses for a month, including:
- Credit card bills
- Car loans
Then, look for areas where you can reduce spending once you’re not working. For instance, you may be able to easily cut some expenses, such as professional wardrobe, second car, fewer meals out, etc., once you retire.
The idea is to look for areas where you can realistically cut costs if you’re planning for retirement. Once you are no longer working every day, your need for work attire will be eliminated or reduced. You may be able to get by with only one vehicle, reducing your payments, car insurance, and maintenance costs. Services, such as ridesharing, make this option even more attractive today.
EXPLORE AFTER-RETIREMENT INCOME
Examine the difference in your income after retirement. Include all your personal retirement incomes, such as personal savings and investments, Social Security, and rental property. Meet with your financial advisor before retirement to come up with a plan to maximize your after-retirement income.
PAY OFF DEBT
Now is the time to create a plan to get your debt down to zero (or as close as you can get to zero) by the time you plan to retire. It may take some small sacrifices or lifestyle changes, but it is possible. The less debt you have upon retirement, the better positioned you’ll be to live well in your golden years.
Paying off your home before you retire provides greater flexibility in your monthly budget. Prior to retirement, housing typically takes up about 30 percent of before-tax income. Without that extra expense, your retirement savings could stretch much further.
If paying off your home isn’t an option before you retire, downsizing may be the perfect solution. Not only will you save on the monthly cost of your mortgage, but you’ll typically pay less in property taxes and homeowner’s insurance. Smaller homes are usually cheaper to maintain as well.
BUILD UP SAVINGS
Take advantage of “catch up” plans for retirement savings. In the ten years leading up to your retirement age, you have the unique ability to pay extra toward your 401k and IRAs. While you may be torn between helping your children pay for college or other expenses in life, it is best to first focus on your retirement. Loans will always be available for college, but you can never make up lost time and money put toward your retirement.
CONSIDER POTENTIAL HEALTHCARE COSTS
One thing people forget to consider as they’re planning for retirement age is the difference in healthcare costs once you retire. These costs can be considerable and, if not planned for, can derail your retirement plan. Also, don’t forget the possibility of the need for long-term care and the costs required. When planning for insurance costs, adjust your plan, knowing you’ll likely need greater coverage than you currently have.
We’re Here to Help!
Your credit union is so much more than a place to keep your money safe. We’re here to help you make wiser financial decisions as you approach retirement age and more.
Call, chat, or stop in if you have questions about your retirement, including IRAs, savings plans, or even if you want to go over your budget. We’re here to help improve your life!
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.