CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS |
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COUNTDOWN TO RETIREMENT Are you counting down the days to retirement? Is it just
around the corner? A few months, at most a few years? Here’s a checklist from
the Financial Planning Association to help you make a successful transition into
the next stage of your life. Think about what you want to do in retirement. Many
people enter retirement without a clue what they want to do. Do they want to
work part time? Pursue a hobby? Volunteer? Travel frequently? Their choices not
only have implications for the quality of their retirement, the choices have a
profound impact on the cost of retirement and whether retirees have sufficient
money to fund the lifestyle. The earlier you can start thinking seriously about
how you want to live in retirement, the better. Discuss it with your spouse. You and your spouse may
have different visions about retirement, or you may be retiring at significantly
different times. Discuss how you can accommodate these differences well before
you actually retire. Determine what retirement will cost. The rule of
thumb is that you need 70 to 80 percent of your pre-retirement income to live on
during retirement. The problem with this rule of thumb is that it may not
closely match your needs. You may envision a very frugal lifestyle, or a
high-expense one. Err on the high side. Studies indicate that people tend to
underestimate what they actually spend during retirement. Assess your sources for retirement income. Even if
you’re still five years away from retirement, make an estimate of what income
you can rely on during retirement. How much will you receive from Social
Security? From a company pension? What do you have in your 401(k) or other
retirement savings? When you actually retire, will there be enough money to
fully fund your retirement? Or do you need to sock away more now, perhaps work
part-time for a while after retirement or even delay retirement? Prepare your portfolio. Start reviewing your
portfolio five years before your planned retirement to be sure you’re heading
into retirement with the right mix of assets. You don’t want to be overloaded
with company stock, yet you don’t want to abandon stocks entirely as you near
retirement because you’ll still need some growth to stay ahead of inflation. Plan asset rollovers. You may want or need to roll
assets out of your company retirement plan upon retirement, or shift other
retirement assets. Plan your tax and allocation moves before you retire.
Managing retirement resources can be critical to the survivability of those
assets over your retirement lifetime. Watch your spending. Couples approaching the last
five years before retirement tend to experience what’s been called
“lifestyle creep.” With their income often at maximum and many of their
traditional expenses such as children and a mortgage gone, they tend to spend
the surplus. Consequently, they have a higher pre-retirement lifestyle to try to
maintain during retirement, when income is typically lower. Instead of spending
surplus funds during the last of your working years, sock away most, if not all,
of it for retirement. And evaluate your debt. Carry as little consumer debt as
possible into retirement because you’ll likely have less income to pay it off. Check out where you want to live. If you are
thinking of moving for retirement, try to spend as much time as possible there,
in all types of weather conditions, before you actually move. Rent before you
buy home. Practice retirement. In addition to checking out new
living locations, try out other aspects of your envisioned lifestyle before
actually retiring: hobbies, travel, time with your spouse (spend a week’s
vacation just at home together with no plans). Live on your retirement budget
for a couple of months! Check your health insurance. Retiring before
Medicare kicks in at age 65 may leave you without health care coverage. Have in
place coverage when you retire. This may be a continuation of your employer’s
group plan under COBRA (you pay all of the costs) or perhaps a short-term major
medical policy. Also consider a Medigap policy when you reach Medicare age. Consider long-term care insurance. Most couples nearing retirement should strongly consider buying a long-term care insurance policy (better yet, buy it in your fifties). The federal government provides only limited free long-term care under Medicare and you’ll must be impoverished to qualify for nursing home care under Medicaid. A private policy will typically provide far better options. August 2002— This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by McGuire & Co., LLP, a local member in good standing of the FPA. |
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