Retirement is a transition in life that usually requires significant changes to your income and lifestyle. If you are planning on retiring in the near future, it is important that you take steps now to prepare yourself. Below you will find 7 tips to help you prepare for your own retirement.
1) Decide how you will spend your time retirement. You may think that this issue is irrelevant if you have a good retirement account. However, this decision can have a huge impact on your quality of life and what you are able to do. Most retirees have reduced expenses, but you may want to travel, spend on clothes, or a new car. Sit down and make a list of the things you will want to do when you retire and how much you think they will cost. Be conservative with your estimates. It is far better to overestimate your needs than underestimate and struggle financially in your retirement years.
2) Make a long-term investment plan. The goal is to keep your nest egg safe, but you also need to make sure that it lasts the rest of your life regardless of inflation or increased expenses. You will need to conservatively estimate the number of years you will be in retirement. For most people this is 20 to 25 years. You will also need to develop a plan for how you will use your assets to minimize taxes and reduce any potential penalties. A great way to do this is to schedule a meeting with a financial planner.
3) Sign up for Medicare at the appropriate time. You may not know it, but it is important to sign up for Medicare as soon as you are eligible for its benefits. The proper age to do this is around three months before you turn 65. Delaying this task could cause financial penalties. Retirees should also look at Medicare’s premiums, deductibles, copays, and coinsurance to determine how much money will need to be paid out of pocket. If you plan on retiring before the age 65, you will need to find another source of health insurance until you qualify for Medicare benefits.
4) Determine what your workplace retirement benefits are. If you have workplace benefits, you will need to figure out what they are and how much money they can provide you with. Experts suggest that you make an appointment with your human resources department to discuss these details. You should also check when 401(k) plan vests. This is the amount of time it will take before you can retire and keep your employer’s 401(k) contributions.
5) Consider rolling over your 401(k) retirement plans. If you leave a job that you have a 401(k) with, you have the option to roll your balance over to an individual retirement account o IRA. To decide if this is a good move for your own needs, you need to compare the fees and investment options in the 401(k) plan with those in a typical IRA plan. However, if you plan to leave your job before age 65 and you need to spend some of your 401(k) balance right away, you may want to leave your current funds in the 401(k) plan. Most people do not know that you can take penalty-free 401(k) withdrawals from the 401(k). But this is only available if you left your job at age 55 or later. If you move your current funds into to an IRA, you will need to wait until age 59½ to avoid ten percent early withdrawal penalties.
6) Decide what the best time is for you to sign up for Social Security. Be aware that when you sign up for Social Security this could drastically affect how much money you will get per month. Current retirees are eligible to receive full benefits if they retire at age 66 or after. However, if these same retirees decide to sign up before the age of 66, monthly payments are significantly reduced. Likewise, if retirees delay claiming social security benefits until age 70, payment amounts usually increase. Married couples can also claim spousal and survivor’s payments. As such, it is important to consider the best ways to maximize benefit as a couple. If you would like to get a personalized estimate of Social Security retirement benefit go online and create an account at socialsecurity.gov/myaccount.
7) Do not forget required minimum retirement account distributions. For most retirees, there is a requirement at 70 and ½ years to withdraw money from traditional retirement accounts every year. After money is withdrawn, you will have to pay income tax on each distribution. If you forget this, there could be a significant penalty for failing to withdraw the correct amount.
8) Create an emergency savings plan. Most retirees end up underestimating basic monthly costs in retirement. This makes emergency funds in retirement extremely critical for covering unexpected bills. Experts recommend keeping six months to a year’s worth of expenses in a liquid interest-bearing account. Having this readily accessible cash gives retirees flexibility and the ability to survive on a limited income if emergencies arise.
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Following graduation from Loyola Law School in New Orleans in 1990, Price McNamara served as a Federal Judicial Law Clerk to the Honorable John M Shaw, Chief Judge, United States District Court Western District of Louisiana.
Mr. McNamara founded the Law Offices of J. Price McNamara, and began putting his past experience to work for the injured and disabled clients he now represents against the insurance companies in personal injury and long term disability and other insurance disputes in both federal and state courts