Seven Sensible Things You Should Do Before Retirement

Seven Sensible Things You Should Do Before Retirement

  1. Pretend you are on a retirement budget
    Once you decide on your retirement income, divert income to savings to pretend you are on your retirement budget. If all goes well for a year, you won’t have to make a big adjustment in your lifestyle or second guess your decision to retire. If you find yourself coming up short, consider working longer or finding a way to spend less or earn more. If you are not sure where to start, consider this: according to Harvard Business School professor Michael Norton, income above $75,000 won’t do much to make you happier. Of course this depends on your particular circum­stances, but the point is once your basic needs are met more stuff or dinners out won’t do much to enhance your overall happiness.
  2. Seek out profes­sional counsel regarding when to take Social Security
    Social Security is complex, especially when you consider spousal benefits. While your local Social Security office can answer your questions, they are not obliged to counsel you on maximizing your benefits. Obviously, people are missing out on this signif­icant income stream given the largest percentage of people start benefits at age 62. The best thing to do is to seek profes­sional counsel who can analyze different scenarios and inform you of which strategy makes the most sense.
  3. Select the right pension option
    It may be tempting to select the single life annuity because that is the highest monthly option. If you have a spouse that depends on your income, carefully consider the right survivor option. Some people buy life insurance to provide for their spouse only to find that premiums sky-rocket after they are age 70. If you use the 4% rule, it will take approx­i­mately $300,000 in assets to yield a $1,000 per month pension.
  4. Do your homework on health insurance
    Many people assume that COBRA or staying on their employer’s health plan is the best option to continue health insurance. Today there are many options to manage costs and provide a high level of care. The best way to make a decision is to quote out the options for you and your family before making a decision. Evaluate the cost for COBRA, company retiree insurance or the Health Insurance Exchange if you are under 65. If you are over 65 what is the cost of tradi­tional Medicare and supple­mental insurance or a Medicare Advantage Plan? After you under­stand the numbers and coverage, you can make an informed decision. Sometimes people do what is easiest but that is not always the wisest choice.
  5. Have something to do in retirement
    Consider what you will do in retirement. Do you want to volunteer, work part-time, baby-sit the grand­children or travel? Having a purposeful retirement is key to more than just your finances. It also plays a big part in your overall health and happiness. 
  6. Decide which money to use first in retirement
    The decade between age 62 (or when retirement first begins) and 72 (when IRA Required Minimum Distri­b­u­tions start) provide a multitude of tax oppor­tu­nities to save you perhaps thousands of dollars. Invest­ments in taxable accounts, IRAs, annuities, and Social Security all have different tax rates when withdrawing money from the account. By knowing how to take income from your invest­ments in a tax efficient strategy you can boost your rate of return and get your money working harder and smarter.
  7. Pay off your mortgage
    For many people, this debt payment repre­sents one of the largest bills in your household. By not having a mortgage, you can then use these dollars for discre­tionary spending to enjoy your retirement.

Origi­nally published December 2015