By Belinda Tsui, AIF, CFP®
You’re in the final stretch and heading towards the finish line. After years of hard work, it’s time to reap the fruits of your labor and enjoy the rest of your life. If you’re within 10 years of retirement, using the checklist below and prioritizing these 10 things will help you feel confident about retiring. Most of us have a vision of what our ideal retirement should look like, and with proper planning and preparation, you’ll be able to enjoy both the sunny, and rainy days of your retirement.
1. Crunch the Numbers
Once you’re retired, there will no longer be paychecks coming in. There may be feelings of uncertainty as the nest egg that you have so diligently built up over the years dwindles down. It is time to start gathering your information by evaluating the resources you’ll have during retirement and the amount that you will need to live on for the duration of your retirement.
2. Test Drive Your Retirement Income
While you have some time before the big day, it is a good idea to test out if you can live within the reduced budget you plan on following during retirement. Along the way, you can make tweaks and changes to refine your expenses and budget ahead of time.
3. Save More Aggressively
During your final working years, you should have reached the height of your earning potential. After age 50, you can save more money with catch-up contributions in your retirement plans.If you have maximized the amounts in your retirement plans, start building up reserve cash for living expenses and investing the rest.
4. Decide Where You’ll Live
Housing expenses will likely still be your greatest expense during retirement accounting for over 40% of your annual spending according to the Employee Benefit Research Institute. Retirement is not just about the target date, but the entirely different lifestyle to follow. Do you still wish to stay in your current home? Are there better options out there from a financial or lifestyle perspective? We don’t recommend anyone relocating to a new place based solely on saving money. You will need to explore whether the potential location is the right place for you to settle down in during retirement. For some, renting may be an option to consider.
5. Review Your Investments
While you are accumulating assets, you would want the maximum growth. However, as you plan to live off your portfolio, adjustments will have to be made. The portfolio needs to continue growing for longevity risk while providing for a continuous income stream during retirement.
6. Create a Social Security Claim Strategy
Social security benefits can be claimed as early as age 62 (or even earlier under special circumstances) up until the age of 70. There are many strategies teaching you how to maximize your social security benefits. However, delaying social security benefits also comes with opportunity cost, meaning that you may need to draw down your retirement nest egg to cover expenses while you wait. The time at which you decide to claim social security benefits comes with many considerations that may include but are not limited to: life expectancy, survivor benefits, cash flow, etc..
7. Consider Healthcare Options
If you retire before age 65, you will need to cover your own health insurance until you qualify for Medicare. After age 65, you will be covered by Medicare, but not for everything. You’ll still have to explore the different policies available that will cover the difference in what Medicare does not cover. As you get older, you will have more medical visits and experience higher health care costs during retirement. Fidelity estimates that a 65 year-old couple retiring today will need $300,000 to cover medical expenses. It is crucial that you take these future healthcare costs into account while you are planning for retirement.
8. Don’t Forget About Long-Term Care
Most Americans underestimate the risk of needing long-term care services. For those who expect to survive to 65 years old today, there is almost a 70% chance of needing some type of long-term care services during their lifetime per the U.S. Department of Health and Human Services. According to Genworth Financial, the annual national median cost for a nursing home private room in 2021 is $108,405. For a home health aide, the national hourly cost is $27.00 in 2021. Medicare does not pay for long-term care if that is all you need. Medicare will only pay for skilled services or rehabilitative care for up to 100 days in a nursing home. If you do not plan for these costs, the surprise can erode your life savings and jeopardize the quality of life for your significant other. Careful planning of your assets and consideration of long-term care insurance are highly recommended in the years leading up to retirement.
9. Come Up with a Tax Strategy
Many people choose to kick the can down the road when it comes to paying taxes. What ultimately happens is that they end up in a much higher tax bracket by deferring the taxes for too long. Don’t forget, your income impacts the taxable amount of social security benefits, the amounts paid for Medicare, and other favorable retiree benefits. Sometimes, paying higher taxes early on while you still have control may not be a bad thing.
10. Get Professional Advice
You have done a great job in accumulating assets, it’s time to get yourself set up for the “Golden Years”. When was the last time all of your financial advisors (accountant, insurance agents, attorney, and investments advisor) had a meeting to discuss how each of these important components of your life will impact each other? This is where a financial planner with a holistic approach can coordinate all the important pieces of the puzzle for your retirement success.
It’s key to how we at Heller Wealth Management create sustainable financial resilience that enables the new breed of doers, dreamers and still-ready-to-go retirees to confidently pursue their passions. Schedule a 20-minute call with us to see what we can do to help you prepare your finances for a long, successful retirement.
