When I first heard the Beatles’ “When I’m 64” it seemed like it would be forever before I got there. But here I am. Eligible for Medicare and Social Security. Where did the years go?
Now that we’re nearing retirement, it’s time to make sure that we’re properly prepared. That’s important. Retiring when you’re not prepared can be costly. And, unfortunately some financial mistakes cannot be easily corrected.
Estimate Your Retirement Income
Your plans call for a comfortable lifestyle. An occasional meal out and a visit to see the grands at least once a year. And that costs money. Have you estimated your expected income and expenses after retirement?
Begin with your income. For most of us that could include a pension, Social Security, income from savings and retirement accounts (401k, IRA) and perhaps some part-time income. It’s easiest if you figure everything in annual/yearly amounts.
Start with your Social Security income. Their website has an has an estimator <https://www.ssa.gov/benefits/retirement/estimator.html> that’s helpful. You’ll want to have your prior year’s earning amount handy when you visit their site.
Add to that any pensions you may have earned. Some may pay you in a monthly check from the pension fund. Others will purchase an annuity for you which will pay a regular income. The pension administrator will be able to tell you how much to expect.
Ask your financial advisor how much you can expect to get from your savings and retirement accounts. Traditionally it was assumed that you could expect to earn/spend 4% on your investments without depleting the principal. But some advisors have begun to question that assumption and use different calculations.
You may choose to work part-time. Either because you need the income or because you’d be bored without work. Do a rough estimate on how many hours you’ll work each week and how much you’ll earn per hour. Then multiply by 52 to get an annual estimate.
Estimate Your Retirement Expenses
Traditionally it was assumed that you’d spend less in retirement than you did while you were working. The rule-of-thumb estimate was that you’d spend between 70 and 80% of your pre-retirement expenses. Many planners still use that as a fair estimate.
But some suggest that with more time to spend on hobbies and travel that retirees could actually spend as much or even more than they did when working. You’re in the best position to know what lifestyle you expect after retirement. And that puts you in the best place to estimate your post-retirement expenses.
Start with your present expenses for a year. Then make the appropriate adjustments.
Review Your Estate Plans
Much as we’d like to think that we’ll live forever it’s time to recognize that’s simply not true. And that we need to make provisions for the end of our life or a time when we cannot care for ourselves.
If your affairs are simple it’s tempting to attempt to do-it-yourself. But this has some serious downsides that might not become apparent until it’s too late. It’s not as simple as writing “I leave everything to _____” on a napkin and signing it. There are laws to follow. And they’re not the same everywhere. Some inheritance rules are different in each state.
You may think that “everyone knows” that you want your car to go to Junior, but that might not hold water with the department of motor vehicles when he tries to reregister it. And banks, credit card companies and other financial institutions can be sticklers for following the rules.
Incapacitation is another issue. The laws saying who can make decisions for you if you become incapacitated are complex. Failure to follow them could leave you dependent on a state appointed guardian to make decisions for you. I prefer to have someone I trust make those decisions for me.
As a general rule you’ll need the following documents:
– a will providing instructions as to how your assets are to be distributed.
– a durable power of attorney listing on can act on your behalf
– health care power of attorney authorizes someone to make medical decisions for you
– living will states your wishes for life-sustaining measures if your prognosis is terminal.
In some cases, if you have a need for privacy or your affairs are complicated you may want to explore a Revocable Living Trust.
Spend a Little Time Learning About Retirement Finances
Retirement is a big change in your life. And a big change in your finances. In most cases the biggest change since you entered the workforce.
Not only will your income and expenses change, but Some financial issues will take on a new urgency while others fade in importance. This is not a time to put your finances on autopilot and assume that everything will work out for the best.
There is one big difference in retirement finances that can affect every decision you make. Unlike when you’re younger and working you do not have time on your side. Some decisions cannot be undone and a mistake could seriously affect your retirement lifestyle or your estate.
It’s wise to seek wise professional counsel and read quality information sources. Both will serve you well in this stage of your life.
Also, check out How to Use Your Emergency Fund In Retirement
author’s bio: Gary Foreman is a former financial planner and has shared sound personal finance advice since 1982. He founded <a href=”https://www.stretcher.com/index.cfm?KimHoward“>The Dollar Stretcher.com website href=”https://stretcher.com/subscribe/subscribeAFF.cfm?Kim Howard“>After 50 Finance newsletter</a>. Also by Gary Foreman: <a href=”https://www.stretcher.com/stories/18/18jul23c-how-to-use-emergency-fund-in-retirement.cfm?KimHoward“>How to Use Your Emergency Fund In Retirement</a>