After a long, successful career, letting go and heading into retirement might be harder than you think. While retirement looks different for everyone, creating a solid financial plan can help alleviate some apprehension surrounding it. By assessing your finances, budgeting for expenses and taking your time as you enter retirement, you can enter your golden years with anticipation instead of dread. Here are the best tips to help you transition smoothly. You can also work with a financial advisor to help you create the right financial plan for your retirement goals.
1. Review Your Finances
First and foremost, you need to review your financial situation to ensure you have enough savings and income to retire. The last thing you want is to get all the way to retirement without knowing if you have enough money for the future you have planned. The following factors will affect how much you’ll need to afford retirement:
- How long you’ll be retired for
- The cost of living for your state
- Whether you want to leave an estate or legacy for your heirs
- The costs of wants and needs, from food and housing to travel and hobbies
If going in-depth with your finances feels intimidating, that’s okay – you can get help from a trained financial professional. This guide will go into more detail about consulting with a financial advisor later.
2. Create a Retirement Budget
Once you have a handle on your financial circumstances, you can shape your budget with that information. The most significant difference between being in the workforce and being retired is income. Even if you plan on working part-time in retirement, there are limitations to how much income you can generate before incurring heavy taxes. This penalty applies until you reach full retirement age. As a result, you’ll be planning your budget around a fixed income unless you plan on working into your late 60s or 70s.
Sticking to a budget can prevent stress, even if it means cultivating a new set of financial habits. It’s crucial to be disciplined in your spending, as you’ll need to afford the following in retirement:
- Food: You might be planning on cooking for yourself most of the time. Or, you may prefer to go out several nights per week. Plus, you may want to regularly host family and friends for dinner in retirement. These considerations make food a critical part of your budget.
- Housing: Will you be making mortgage payments in retirement? If not, you’ll have more room in your budget, but housing is still a factor. It’s a good idea to plan to spend at least 1% of your house’s value annually on maintenance and repairs. For example, if your home is worth $200,000, budget $2,000 for house-related expenses. Plus, you’ll continue paying for taxes and utilities.
- Healthcare: While retirement confers benefits from Medicare, you’ll need to prepare for prescription costs, deductibles and supplemental insurance plans. Even if you have insurance from an old job, part of your medical costs will be your responsibility.
- Transportation: Retirement may mean not working anymore, but you’ll likely still have a commute. Whether you’re going to the golf course or visiting family, you’ll have to pay for a vehicle or another mode of transportation.
3. Consider How You Will Spend Your Free Time
You might be perfectly content as a homebody. On the other hand, sitting still in retirement may not be for you – regardless, much of what you’ll do in retirement won’t be free. Traveling, picking up a new hobby and spending time with loved ones all have associated costs. Since income is one of the top limiting factors in retirement, it’s a good idea to prioritize what you’d like to do most and designate money for those purposes.
4. Make Sure You Have Healthcare Coverage
If you retire before 65, Medicare won’t be available to you yet. In this scenario, you have four options:
- You can purchase health insurance through your state’s health insurance marketplace. Because of the Affordable Care Act, you can obtain a health insurance plan upon retirement, even if you have pre-existing conditions. Plus, the government scales the costs of available insurance plans to your income level.
- You may be able to keep your employer-sponsored insurance plan. This option can be helpful if you’re turning 65 soon or have maxed your out-of-pocket costs for the current year.
- If your spouse is still working and has insurance from their employer, they could add you to their plan. Because employer-sponsored plans are generally less expensive than individual plans, this could be your cheapest option.
- If your income falls beneath 138% of the federal poverty level upon retirement, you are probably eligible for health insurance through Medicaid. However, there may be financial implications for using Medicaid in your state. For example, if you receive long-term care that Medicaid pays for, your state may recoup its losses by tapping your estate.
The cost of healthcare is definitely something you need to figure out before retirement. Upon reaching 65, you’ll be eligible for Medicare. While the government-sponsored insurance plan benefits retirees, there are gaps in coverage that you’ll need to address. As a result, you’ll likely pay for supplemental coverage once you’re on Medicaid.
5. Pinpoint the Right Time to Start Taking Social Security
The age you begin receiving Social Security payments influences the size of your monthly check. For example, starting to take your Social Security benefit at age 63 would net you less monthly income than waiting until 66 and a half.
The earliest you can take Social Security is age 62. On the other hand, if you can delay taking payments until age 70, you’ll maximize your Social Security payment. However, waiting that long is unfeasible for many retirees. Instead, it’s recommended that retirees plan on a specific portion of their income from Social Security to fit their desired budget. That way, you can intentionally draw on Social Security as part of a holistic financial strategy that includes income streams from your retirement accounts and other assets.
6. Explore Part-Time Job Opportunities
If you find work fulfilling, that trait likely won’t go away during retirement. While retirement is a significant transition, it doesn’t mean your professional life has to be over. A part-time job can help you maintain a sense of normalcy, create a balance between work and play and generate extra income. As a result, the fruits of a part-time job can reduce stress and instill meaning in your life.
7. Consult With a Financial Advisor
Retirement can be overwhelming emotionally and financially. You might be feeling a combination of excitement, anxiety and confusion as you review your financial situation. Trying to figure out every aspect of retirement can be daunting. Fortunately, a financial advisor can help you prepare for each facet of retirement, from healthcare costs to 401(k) distribution amounts. Although financial advisors charge fees for their work, the peace of mind from a rigorously structured financial plan can be worth it.
8. Take Your Time Transitioning
Retirement is one of the most far-reaching changes in a person’s life. Almost everything becomes different when you retire, from your daily schedule to your income level. But, because change is typically uncomfortable, you can take it one step at a time.
For example, you might choose to go part-time at your same job instead of leaving the workforce entirely. Or, you could take a month-long vacation shortly before retiring to see how it feels to have all your time to yourself for an extended period. You might find that a specific amount of structure is productive for you instead of having free time for the entire day. Or, a new dream or aspiration might crop up once you take a few moments for yourself. Either way, embrace the process and find ways to take it in chunks.
The Bottom Line
Retirement can be a tumultuous time, both financially and mentally. Because significant financial challenges can accompany some of the biggest changes in your life, creating a financial plan is key. Budgeting for expenses like housing, healthcare and more can bring peace of mind and grant you your desired quality of life in your golden years. However, if you think you need help getting organized, a financial advisor can provide guidance.
Tips for Transitioning to Retirement
- If you’re stressed about affording retirement, you’re not alone. With the cost of living steadily increasing, you might wonder how to create a sound financial plan. Fortunately, many financial advisors specialize in retirement planning and investing. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Healthcare is one of the highest costs in retirement. As you transition to retirement, here is how much you’ll need for medical care as a retiree and how much income you can expect to have after paying for healthcare.
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