There are many smart actions you can take now to make your future more secure.
Why American retirees are returning to work
A new study from the Employee Benefit Research Institute shows the rate of return to work among retirees in the United States.
That means I have about five years left until I retire. Before your last working day, it makes a lot of sense to start making a list of things to do. Doing so could be the difference between a comfortable retirement and a stressful one.
So here are some moves to consider before you retire.
1. Make a plan and know where you are
First things first. You need a comprehensive retirement plan. This includes thinking about how much income you’ll need in retirement and how you’ll get it. Carefully track your expenses over a period of months or a year and use that to help estimate your future income needs. Also keep inflation and medical costs in mind as you plan.
2. Aim to establish multiple sources of income
It’s wise to have multiple sources of income during retirement. That way, if one ends up disappointing you, for example, the future of Social Security is threatened, the others can still exist. Here’s what these streams look like:
Of course, income sources can vary widely in size and type. These may include pensions, rental property income, royalties, bond interest, etc. Including a large number of high-dividend stocks in your portfolio can be very effective. For example, a $500,000 portfolio with an overall dividend yield of 4% should generate about $20,000 annually. And that amount can also increase over time.
3. Get out of debt
If possible, aim to enter retirement with minimal or no debt. If you’re not facing a large monthly mortgage or car payment, this will help you sleep at night.
4. Create a medical plan
As you approach age 65, start researching Medicare. That’s because you need to enroll in Medicare by choosing between “original” Medicare, which features Part A (hospital coverage) and Part B (physician/medical insurance), or a Medicare Advantage plan, also known as Part C.
If you’re under 65 and still planning to retire, consider the most effective way to obtain health insurance. An exchange under your state’s Affordable Care Act may be your best bet.
5. Stay as healthy as possible
Our health often deteriorates as we age, and more people develop illnesses and require more care. Staying fit and healthy for retirement is a smart move, as it can keep your medical costs low and allow you to enjoy more activities like travel, sports, and other pastimes in retirement. Therefore, be sure to exercise and eat nutritious food.
6. Social security planning
Learn more about Social Security and think carefully about when to claim Social Security. You can start collecting Social Security as soon as you turn 62, or you can delay it until age 70 to increase your benefits. Most, but not all, people will maximize their Social Security benefits by deferring until age 70 if possible. If you’re married, coordinate your strategy with your spouse.
7. Fill out your health savings account
If you have a Health Savings Account (HSA), consider filling it up as much as possible before you retire. Unlike other accounts, you don’t lose if you use it. This is essentially a retirement account, and the funds in the account can be invested and grown. As that money grows, you won’t have to pay taxes on that income. Also, if you withdraw money for qualified medical expenses (which you’ll likely need in retirement), you won’t have to pay taxes at that time. You can use the money for non-medical expenses, but such withdrawals are considered taxable income.
8. Take a test drive toward retirement
If you have a retirement plan and think you know how much income you’ll need in retirement, start living off that amount now. Preferably for a year. This will help you see if you have enough money or if you need to save more.
Think not only about your finances, but also about your retirement. Think about how you spend your days. What hobbies do you enjoy? How do you socialize if you don’t have colleagues at work? Imagine some undesirable developments as well. How do you deal with big, sudden expenses, like expensive home repairs? What happens when the stock market crashes?
9. Consider downsizing or relocating
Perhaps consider downsizing or relocating after retirement. It’s not the best option for everyone, but it can be a powerful strategy if you don’t have nearly enough savings for retirement. If your current home is much more expensive than homes in other areas you’re moving to, you could potentially make a huge profit by moving and use that money to strengthen your nest egg. Simply downsizing to a smaller home in the same area can also be effective.
10. Consider delaying retirement
This idea may be unwelcome, but it can be very powerful. Delaying your retirement date by a few years allows you to save more money and gives you more time to grow your investment portfolio. It also reduces the number of years your nest egg has to support you. Delaying retirement can also delay your Social Security claim and potentially increase your benefits.
Consider all these movements. If you can act on some or many of them, your future financial security could be significantly improved.
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