Credit: Shutterstock photoAfter decades of hard work and saving, you finally enter your golden years. If you're gearing up to retire this year, here are five tasks to keep in mind, from spending cash to spending time.
Create a budget and spending plan. Before you enter retirement, fix a money amount you can part with regularly. This will help you compare what income you expect after working with your anticipated living expenses, and provide a framework for how much you need to live comfortably in retirement.
Experts estimate that most retirees need at least 70% of pre-retirement income to maintain a familiar standard of living. Lower-income earners may require 90% or more.
Think about socking away funds to prepare for emergency expenses that your standard retirement budget may not cover, such as unforeseen health-care costs, auto repairs or property maintenance.
Try living off of your expected budget for at least six months prior to retirement: Test-driving your plan will also help you identify gaps or expenses you missed.
Determine when to enroll in Medicare and take Social Security benefits. The current eligibility age for Medicare is 65. It's important to sign up for Medicare as soon as you are eligible, or begin submitting the appropriate paperwork as much as three months in advance.
Failure to sign up before 65 may cost you fees and penalties. Evaluate premiums, copays and co-insurance to help determine what you potentially pay out of pocket.
Medicare may not cover every health-care expense. Look into the program's supplemental policies, aka Medigap , which private insurance companies sell. A long-term care insurance policy can also help you pay for hospice care, assisted living and other expenses Medicare may not cover.
Determining when to begin Social Security benefits can vary depending on your situation. Many retirees begin benefits as soon as eligible, requiring the money immediately to supplement income during retirement; others can delay.
Taking Social Security before your full retirement age ( FRA ) may reduce your benefits. Your FRA is 66 if you were born between 1943 and 1959, and 67 if you were born in 1960 or later.
If you don't need the cash flow, you may want to delay benefits until after you turn 62, when you can take early benefits (which are lower than at FRA). Your benefit amount can then grow 8% annually. If married, you may be able to collect spousal benefits, which are based on your spouse's work records. Consult a financial advisor to determine your best approach.
Roll your 401(k) over into an individual retirement account (IRA). Accessing your savings in retirement can be tougher if you keep the money in your employer's 401(k) plan. Rolling your dollars into an IRA allows for easier access and distributions - often even a monthly transfer to your bank account, a kind of monthly replacement paycheck.
Rolling your savings over into an IRA might also save money, as many 401(k)s carry administration fees when you take out money. Putting your savings into an IRA that your existing financial advisor manages allows for more streamlined distribution planning, since all of the assets will be in one place.
Develop a long-term investment plan. Fear for your savings need not prevent you from growth investing to keep up with rising costs.
Many retirees stash portfolios in bonds, but over time inflation can erode the purchasing power of such investments' yield . A well-diversified portfolio that includes a balance of stocks and bonds can often help your nest egg last throughout your retirement years (which might span three decades ). Consistently monitor your investment allocation - it may change over time depending on your age, retirement goals and financial circumstances.
Taxes influence how you spend assets during retirement. Your best strategy is probably to first dip into taxable assets (such as profits from the sale of investments) and allow tax-deferred assets - such as funds in retirement accounts - to continue to grow and compound.
Note: Most tax-sheltered plans require that you start required minimum distribution ( RMD ) withdrawals no later than age 70½.
Decide how to spend time. This plays a huge, sometimes surprising role in determining your financial condition in retirement. Your plans and expenses will vary in the months ahead depending on your interests, hobbies and activities.
Some retirees, for example, opt to stay close to home and spend more time with family. Others travel around the world. Knowing how you will allocate free time and dollars goes a long way toward keeping you on your golden years' budget.
Retirement can be expensive, especially if you have no plan.
Follow AdviceIQ on Twitter at@adviceiq.
Derec Mieden is an associate consultant with Wipfli Hewins Investment Advisors LLC in Wausau, Wis.
Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC ("Hewins") is an investment advisor registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli, LLP. Information pertaining to Hewins' advisory operations, services, and fees is set forth in Hewins' current ADV Part 2A, copies of which are available upon request or at www.adviserinfo.sec.gov .
The views expressed by the author are the author's alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment, or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialtyrank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
