If you’re within six months or so of retirement, there are certain things you need to do now to help prepare yourself for the transition into retirement.
Throughout this retirement preparation process, there will be times when you feel as though you are making a series of rapid-fire micro decisions as you work through social security benefits, Medicare options, pension elections and retirement account distribution.
The decisions to be made are many and understanding the long-term ramifications of those decisions is paramount considering that your retirement years could be as many as those spent working.
The numerous options you will face can become a labyrinth of choices leading many people to attend YouTube university in search for answers while leaning on friends and coworkers to fill in the missing pieces.
What most people come to discover is that regardless of how many videos they watch or friends they speak with, they are unable to fill in all of the blanks for what needs to be done and ultimately leads them to choose the path of least resistance.
The truth is, people underestimate the complexities that exist with preparing for retirement and find themselves over their head when making important financial decisions.
There is a plethora of complexities that makes the decision-making process much more complicated than some would be led to believe.
Unfortunately, without understanding the long-term effects of one decision over another, a retiree may be well into their retirement years before the problems begin to surface. For instance,
- Inflation will erode your income over time
- Longevity may require your money to last longer than assumed
- Market volatility can have you depleted of resources
- Heath care expenses can potentially absorb most of what you have
But by the time these risks are exposed, retirees find themselves stuck and unable to make changes that are impacting decades of their retirement.
That is why retirement planning shouldn’t be viewed as a rapid-fire micro decision-making process but rather a time to design a master plan that is focused on what you can control and protecting yourself from what you can’t control and considering very little is in your control, there is a lot of planning to do.
Think of it like the construction of a home… you wouldn’t begin building a home without first having blueprints drawn up.
Your retirement plan is the blueprints of your retirement while social security benefits, Medicare options, pension elections and retirement account distributions are your building materials.
Now, there are certain you can do to ensure you have your bases covered and are retirement ready.
Going back to the home construction metaphor, it is better to count the cost of your retirement now to uncover potential problems before actually retiring.
This process enables you the opportunity to maximize the output of your resources while protecting your future.
Before you begin making important decisions about your retirement, carefully evaluate your current thinking about your situation.
First of all, Develop an income plan detailing exactly how much income you will need each year to fund your retirement lifestyle
Now, before skipping over this you should consider that your lifestyle will change along with your tax situation which means that what you need now will not be the same when you retire.
So, it is not a good idea to make general assumptions about your future income needs based on how things are while you’re working.
Careful consideration needs to be placed on what will change and what will stay the same while adding into the mix such things as travel, health care costs, and other variable expenses.
I discussed this in length on my podcast, What is Cash Flow?
Next, Identify your income sources and show exactly how much income will be generated from each source to satisfy your annual income needs?
No generalizations here… you should seek to know exactly how much from each resource you have.
This is where most people begin to struggle because there is often a disconnect between their mindset around their assets and the need they have from them.
There are generally two camps with this, those who focus on protecting their principal by holding cash while others hold on to public markets in hopes for long term growth making it is inherently difficult to abruptly change how the money is handled in an effort to generate income.
The next thought here is that You will want to Have your assets mapped out and separated by their purpose
What I find is that most people have money sitting in bank accounts, large amounts of equity in their home and money combined together in public markets.
And while this may seem an ideal arrangement, it is important to point out that cash in the bank is not earning anything, equity in a home is not earning anything and money in the stock market has varying levels of risk…None of which translates to having consistent income in retirement.
To get a handle on this, you have to realize that the system or mindset used to accumulate assets is not the same system or mindset used to utilize those assets.
Next is designing an income replacement plan in place for your spouse to cover the loss of social security or pension income if you were to predecease them
Developing an income strategy for retirement most often means you are relying on a husband and wife’s benefits but those benefits are only received while both are living (in most cases).
Many people are misled into believing that as you get older your need for life insurance diminishes and while this may be true for some, for others the need for it may actually rise.
Your response to questions 1-3 will determine whether life insurance is needed but in no way should you assume that once you retire it is no longer needed.
A couple of other considerations here are ensuring your legal documents (updated) in place designating financial power of attorney, medical directives, wills and trusts?
Most people kick this can down the road with the idea they will have time to get this done later.
(Later meaning when they need it.)
Here is the deal, if you wait until you need these documents it will be too late to get them.
And the other is having a contingency plan in place to cover health care costs if you were to find yourself needing long term nursing care
This is an area that so many people ignore, crossing their fingers hoping nothing happens to them that would require this level of care.
However, considering the adsorbent cost of nursing care, it is not something to ignore.
You need to know how this cost will be covered if you find yourself needing care.
The cheapest way to cover this risk is through insurance but some may be able to create a “purpose” for some of their assets.
Wherever you are in your thinking, there is an opportunity to improve your probability for a successful retirement.
To get started, figure out where you are, know where you’re going and then identify what obstacles stand in your way.
You can download the Successful Retirement Checklist™ for free and begin using it to score yourself in these areas at BrianSkrobonja .com
