It’s hard to believe how close we are to rounding the corner into a new year. Some of you may be waiting on pins and needles, ready to ring in 2020 so you can retire. If so, I say kudos to you! There’s a fantastic feeling that comes with being on the glide path to your post-career life.
So, are you ready? Have you planned for your best retirement life?
Prepping for retirement – whether in 2020 or beyond – is a two-part formula. The most often discussed part is the financial piece. But equally important is the emotional (or lifestyle) part. You want to be prepared for both.
Take a look through our list of seven things to double-check before hitting the launch button on your retirement next year. You may read something that prompts you to plan just a little bit more.
1. Get Ready For Your New Lifestyle
Most folks start with the financial piece, but I want to talk about lifestyle first. It’s that important. After all, you could have all the money in the world, but if you have no plan as to how to spend it – or spend your days – then what does it matter?
Right now is the perfect time to define your core pursuits. I’ve long said that the happiest retirees have an average of 3.6 core pursuits, or “hobbies on steroids.” Unhappy retirees have just 1.9. These are the critical components to have during your retirement. This is truly a case where more is more.
How many core pursuits do you have? So long as your budget can support it, why not add a few “extras?” From my research for my book, You Can Retire Sooner Than You Think, it doesn’t matter what your core pursuits are. It just matters that you have them.
Here are a handful of some of that I’ve heard from happy clients: physical activities like walking and hiking; playing sports like golf; creative hobbies like playing an instrument; outdoorsy things like fishing and horseback riding; using expertise to consult or teach; and, of course, travel!
Whew. That’s a lot. That’s because there’s so much to do with your newfound time.
And, guess what? Visiting with friends, babysitting your grandchildren and attending church all count as core pursuits, too. Want to know the number one core pursuit of the happiest retirees? Volunteering dominates the list. So, get involved with an organization or cause that you support, and no doubt you’ll get fulfillment from your contribution.
2. Take a Temperature Test of Your Risk Tolerance
Now that we’ve talked about all of the fun you’ll have during the coming years let’s turn to finances. I want you to do a gut check. How do you feel about your retirement income?
Stopping work can be a scary proposition, particularly when you’ve worked for 30 or 40-plus years. We’re used to thinking of money as a river that flows via steady paychecks. Of course, these paychecks fuel our nest eggs, but what about when we have to start tapping our savings? In retirement, our money goes from a river to a lake. Your income streams and investment income have to support you for the rest of your life.
Here’s my advice. Consider reviewing the 15/50 Stock Rule of Thumb. The guideline says that if you believe you have at least 15 years left on this planet, 50% of your portfolio should be in stocks, with the remaining balance in various bonds and cash. This is a way to balance risk and reward.
But, you have to invest in a way that you can personally stomach. So, determine how much risk you can tolerate and work backward from there.
3. Have a Retirement Budget in Place
Even if you’ve never done a budget in your life (which I don’t suggest!), you’ll find this exercise highly useful. Your retirement budget doesn’t have to be exact, and you don’t have to spend weeks poring over it. But do try spending a good hour or two at the kitchen table with your spouse with either a pre-populated Excel template or good old fashion pencil and paper. This can be an enjoyable exercise.
Why? Because it’s joy-inducing to think where you’ll spend your money beyond the necessities. Things like vacations, traveling, adventures, social events, and weddings are exciting to plan for. And, ultimately, this exercise will give you a good number to aim for each month with your spending.
Since we’re talking budgets, I advise you to get as close as you can to paying off your mortgage. Ideally, you’ll have it paid before you retire. If not, create a plan to write your last mortgage check within five years of retirement. My research has shown that, as the time left on your mortgage goes down, your happiness levels go up.
4. Take Stock of Your Income Streams
Now you have your core pursuits, your budget and your mortgage mapped out. Great! Now it’s time to tally your income streams. You want to make sure your resources will support your spending.
No doubt, you’ll have multiple income streams during retirement, such as Social Security and/or pension benefits, part-time work, veterans benefits, rental income and (last but not least) investment income from your nest egg.
If you’re not already an income investor, it’s never too late to start. Income investing is an investment strategy that involves owning stocks that pay dividends, a variety of bonds that pay interest and a host of other securities, such as real estate investment trusts and pipeline companies, that all distribute cash on a monthly or quarterly basis. Holding these types of investments can be a great way to supplement your retirement income, too.
5. Plan When to Begin Your Social Security Benefits
One big decision you have to make is as a retiree is when to begin taking your Social Security benefits. The longer you wait, the higher your monthly payments will be. Drawing these monthly checks at age 62 gives you the lowest possible monthly amount while waiting until age 70 will provide you with the highest benefit.
What’s the best age to claim your Social Security benefits? The short answer is that it depends. This is a piece of your retirement planning that you have to weigh given your unique circumstances. Don’t hesitate to reach out to a financial professional if you want help crafted your individual Social Security strategy.
6. Remember Health Care
Bear in mind that health care expenses typically increase as you age. The average 65-year-old couple will spend $280,000 on health care over the remainder of their lives, says research from Fidelity Investments. So, this can end up being one of your most significant retirement expenses.
Sure, there’s Medicare once you hit age 65, but Medicare won’t cover everything. For example, long-term care isn’t covered, and there are no dental or vision benefits.
Plus, you pay for Medicare. The amount you have to shell out depends on a number of variables, such as your income (higher earners pay more), whether you are subject to late-enrollment fees (if you didn’t sign up when you were first eligible and don’t meet an exclusion) and whether you opt for additional coverage and to what degree.
Of course, if you’re younger than 65, you’ll need to find coverage on your own. You could look into Cobra, a program that allows you to keep your employer-provided coverage for 18 months after you retire. Or, you could buy a policy on an Affordable Care Act (Obamacare) exchange. Be prepared for sticker shock as both of these options come with hefty price tags.
Other smart coverage options to consider include disability, life, and long-term care insurance. These policies tend to get more expensive as you age, so shop early.
7. Create a Cushion
And, last but not least, during your retired years, don’t leave all of your proverbial chips on the table. You want a well-diversified portfolio that generates income. What you don’t want is too much exposure to stock market volatility. If you have too much on the table, it may be hard to recover from an economic downturn.
Financial advisors typically recommend that retirees keep several years’ worth of income in lower-risk investment vehicles, like money market accounts or plain ol’ cash. This way, if the market takes a tumble, you wouldn’t have to sell investments at a lower price to generate the necessary income for your retirement budget.
Retirement spending is a dynamic process. When the market is doing well, you can afford to spend a little more. Just remember, if the economy takes a dip, then you know it’s time to tighten the spending belt for a while. But with a little cushion, you should be just fine.