If you’re a decade or so away from retirement, you’ve probably spent at least some time thinking about this major life change. How will you manage the transition? Will you travel, take up a new sport or hobby, and maybe spend more time with friends and family? Should you consider relocating? Will you continue to work in some capacity? Will changes in your income sources affect your standard of living? When you begin to ponder all the issues surrounding the transition, the process can seem downright daunting. Thinking about a few key points now, while you still have years ahead, can help you focus your efforts and minimize the anxiety that often accompanies preparing for retirement.

1. Reassess your living expenses.

A step you will probably take several times between now and retirement—and maybe several more times thereafter—is thinking about how your living expenses could or should change. For example, while commuting and other work-related costs may decrease, other budget items may rise. Try to estimate what your monthly expense budget will look like in the first few years after you stop working. Then, continue to reassess this budget as your vision of retirement becomes reality.

2. Consider all your income sources.

First, figure out how much you stand to receive from Social Security. The amount you receive will depend on your earnings history and other unique factors. You can elect to receive retirement benefits as early as age 62, but doing so will result in a reduced benefit for life. If you wait until your full retirement age (66 or 67, depending on your birth date) or later (up to age 70), your benefit will be higher. The longer you wait, the larger it will be.¹ You can get an estimate of your retirement benefit at the Social Security Administration website, ssa.gov.

Next, review the accounts you’ve earmarked for retirement income, including any employer benefits. Consider your employer-sponsored plan, IRAs and traditional investment accounts you may own. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts too.

Do you have rental income? Be sure to include that in your calculations. Might you continue to work? Some retirees find that they are able to consult, turn a hobby into an income source or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts.

3. Pay off debt and power up your savings.

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off any debt and power up your retirement savings while you’re preparing for retirement.

Why pay off debt? Entering retirement debt-free will put you in a position to modify your monthly expenses in retirement if the need arises. On the other hand, entering retirement with a mortgage, loan or credit-card balances will put you at the mercy of those monthly payments.

Why power up your savings? In these final few years while you’re preparing for retirement, you’re likely to be earning the highest salary of your career. Why not save and invest as much as you can in your employer-sponsored retirement savings plan or IRAs?

4. Manage taxes.

As you think about when to tap your various resources for retirement income, remember to consider the tax impact of your strategy. For example, you may want to withdraw money from your taxable accounts first to allow your employer-sponsored plans and IRAs more time to benefit from tax-deferred growth. Keep in mind, however, that generally you are required to begin taking minimum distributions from tax-deferred accounts once you reach age 72, whether or not you actually need the money. Roth IRAs are an exception to this rule.²

Managing retirement income to result in the best possible tax scenario can be extremely complicated. Qualified tax and financial professionals can provide valuable insight and guidance.³

5. Account for health care costs.

As you age, the portion of your budget consumed by health-related costs will likely increase. There isn’t much in life that’s more complex or cumbersome than reviewing insurance plans and coverage options, so take the time now to start learning about your health insurance options. Visit medicare.gov to understand coverage options. Since there will likely be deductibles, copayments and coinsurance to pay for, Medigap policies and Medicare Advantage plans are available to provide supplemental coverage if needed. Start browsing and understanding your options at least a few months before retiring.

Consider a course of action for if you or your spouse may need home care, nursing home care or other forms of long-term assistance, which Medicare and Medigap will not cover. Long-term care costs vary substantially depending on where you live and can be extremely expensive, so it’s wise to begin preparing for this possibility now. Learn more about preparing for long-term care.

Questions? Contact a CFS Financial Advisor.

Grow has contracted with CUSO Financial Services, L.P. (CFS) to provide investment services, and your CFS Financial Advisor will help you build a plan that meets your needs. The advisor will look at your current spending, saving and investing, learn about your goals and priorities, make objective recommendations and support your efforts moving forward through the implementation and management of your plan.

Schedule a Complimentary Consultation

¹Note that if you work while receiving Social Security benefits and are under full retirement age, your benefits may be reduced until you reach full retirement age. ²Due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, required minimum distributions (RMDs) are waived in 2020. ³Working with a tax or financial professional cannot guarantee financial success.
Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. For specific tax advice, please consult a qualified tax professional.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020.

---

Posted In:

• Investment Education
• Retirement Planning