As you get closer to retirement, you may wonder whether you are really ready to make the leap. How do you know when you are “retirement ready?”
Here are some things to consider before leaving the workforce behind:
Check Your Social Security Benefits
The Social Security Administration considers 66-years-old the age for full retirement. You can receive Social Security benefits before 66, but the benefit percentage you receive is less than if you wait. If you start receiving Social Security benefits at 62-years-old, for example, you only receive 75% of your retirement benefits.
Get Medical Insurance Coverage
Most people wait until they are at least 65-years-old, the eligible age for Medicare, to retire. If you choose to retire before 65, you need to find alternative health insurance coverage. You may be able to continue your employer-based insurance through a COBRA plan for the short-term or get medical coverage through the Affordable Care Act.
Pay Off Outstanding Debts
Before retiring, pay down or, ideally, pay off as much outstanding debt as you can. Money paid to creditors during retirement can dramatically reduce your retirement budget and limit the amount you can spend elsewhere. If you still have credit card debt, loans or a mortgage, you may consider waiting to retire until you pay off those debts.
Establish Your Retirement Budget
Before you retire, you may estimate a retirement budget of 80% of your current annual income. As you get closer to retiring, you can get a better picture of what your monthly budget should be. Estimate how much money you will receive from Social Security, pensions and investments such as a 401(k) or IRA. In addition to living expenses such as utilities, your monthly retirement budget should include room for health care expenses.
Stress-Test Your Finances
Test how your income will handle extenuating circumstances such as moving to a nursing home, living up to 100-years-old or a decrease in your investments. You may also want to consider keeping a separate emergency fund from your retirement income for unexpected expenses.
Decide How to Spend Your Time
Retirement planning involves more than financial planning. How will you spend your time when you no longer have to work? Do you want to travel? Volunteer? Work part-time? Once you have an idea of how you want to spend your golden years, you can create a comprehensive retirement plan that lets you reach your goals for your retirement.
To start your retirement plan, contact a Fifth Third Bank financial advisor today.