Summer’s coming, and there’s nothing like a great vacation to prompt thoughts of- wellmaking this permanent.
On January 1, 2011, the first Baby Boomer turned 65- full retirement age for Social Security (but it’s increasing- age 67 for those born 1960 and later). According to AARP, about 8,000 Boomers per day will reach that milestone for the next 18 years. Many have already retired. With healthy portfolios and a decent economy, many more are contemplating it. It’s a major goal for most of us, though there’s no way to know the perfect time to retire.
The question is, are you prepared personally and financially for this next stage of life? Unfortunately, many just leap into retirement, assuming it will just work out. Hopefully it will, but a little forethought and some basic planning can help improve your odds. From a financial standpoint, there are a few things I look for when advising someone as to whether they are prepared for retirement.
- Is your mortgage paid off? The difference between having a mortgage in retirement and not having one is huge. An extra $1000-3000 a month in expenses makes a big difference in how much you need to save for retirement, or have for discretionary spending. It’s not “mandatory” to have it paid off- but it sure helps.
- Are your credit cards paid off? The high interest rates on balances hurt even more when you are on a fixed income.
- Do you have a year or so of living expenses in the bank? For pre-retirement, this was in case you lost your job. In retirement, it’s to help cover large unexpected bills or so you don’t have to sell securities in a down market.
- Have you put together a Spending Plan? Maybe you didn’t track your spending while you were working, but before you retire you should sit down and make sure your income and planned lifestyle align. It’s a rude awakening to realize a year into retirement that you can’t live like you planned, and are perhaps in debt for having tried.
- Do you have a Long-term Care insurance policy? Can you still afford it even if the premiums go up 20-25%? Home care, assisted living and nursing home care can all destroy retirement plans. Protect yourself.
From a non-financial perspective, the most important question to answer is: How am I going to spend my time once I retire? You can’t golf all the time. You won’t be traveling all the time. What you will be doing is spending a lot more time around home. And that can be a problem. A job provides contact with people, responsibilities, and intellectual stimulation. What will provide those for you in retirement? Have a plan. Retire toward something, not to run away from something.
What if you find yourself wanting in terms of preparation? Consider delaying retirement for a bit. Pay off debt, save a little more, and plan your spending and lifestyle. Working a little longer can make a big difference in how the numbers work. Having a plan to start with beats trying to make one on the fly. Retirement can and should be a wonderful time of life. Some might say a near-ending vacation. An enjoyable retirement is certainly within reach for most of us. A little advanced preparation and planning can go a long way toward making you one of the happy 8,000 on your 23,741st day (Try this: http://korn19.ch/coding/days.php).
Todd Washburn, CFP®
Todd Washburn Solutions, LLC
Fee-only financial planning “Life Planning for Visionary People”