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How do you know when you are ready to retire? Our retirement readiness checklist will help you know when you are truly ready to retire.
Retirement Readiness Checklist: Know When You Can Retire
Have you decided when you want to retire? Deciding when to retire is one of the hardest decisions you will ever have to make in life. This article will walk you through a retirement readiness checklist to help you know when you can retire.
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Several things can impact your choice to retire. Deciding the age to retire should be a balanced choice that weighs all the critical aspects of your life. Some of the various crucial factors to consider before you retire include work, income, expenses, relationships, insurance, investments, and planning.
A lot of people end up not having a choice regarding the age at which they want to retire. The age at which you choose to retire for example if you’re going to retire early in your 20s or later in your 60s will have an impact on you for the rest of your life.
So, it’s essential to evaluate the pros and cons of retirement at different ages and your retirement readiness by going through a sound retirement readiness checklist.
Comprehensive Retirement Readiness Checklist
To figure out if you are ready enough to retire, check out this ultimate retirement readiness checklist and evaluate a few aspects about retirement that you may need to plan for before you retire.
So, here’s a comprehensive retirement readiness checklist to help you plan your personal and financial well-being in your golden years.
Assess future healthcare needs
Healthcare is a huge part of retirement planning. According to 2016 Fidelity study, a typical retired couple will have $260,000 in out of pocket health-care outlays which is an increase from $220,000 as was estimated in 2014 while long-term care could cost an additional $130,000 or even upwards of $400,000!
This is a good example one of the most important parts of your retirement readiness plan.
Two reasons why retiree’s health-care costs are expected to surge are because of longer lifespans and rising prescription costs. It’s thus vital to determine how you will obtain health care in retirement and estimate the total costs before you retire since based on those retirement readiness statistics, it is an essential factor.
Another critical factor to consider is the age at which you intend to leave the workforce since being too young can disqualify you from Medicare.
If you are eligible for Medicare premiums, you need to know that they are usually automatically deducted from your Social Security check and your Medicare Part B premiums may change yearly depending on income, Social Security benefits, and enrollment status.
It’s also good to leave an ample room in your budget for variable costs that could arise outside of your insurance plan. A crucial component of the retirement savings plan is health savings accounts for people with high-deductible insurance plans.
Long-term care insurance can enable retirees to live without depending on relatives in their old age.
Being in good health is an essential element in retirement to keep health care costs down and to increase your lifespan. Some expenses that you may incur to achieve a healthy lifestyle include a gym membership and balanced diet meals from fresh foods.
So, it’s essential to make a budget for extra healthy living expenses too. You can actually sell your life insurance settlement if you need to.
Assess your future housing needs
A comprehensive retirement plan should also address your future housing needs. You need to prepare for your retirement housing needs. Determine if your current home is suitable to live in for the rest of your life.
If you want to downsize or relocate to save money, then you need to factor that in your plan. Housing needs can change over the course of your retirement, and so it’s important to think about different scenarios long before they occur.
If you want to enjoy your retirement, you need financial stability to do so. When you take a reduction in income, a home loan will only add to your problems by giving you an extra bill to pay. However, as long as you agree to stay in your home, a reverse mortgage will pay you with no immediate consequences.
You can use a reverse mortgage calculator-tool to figure out how much you can borrow and set up terms with your lender. The money you receive can be spent on necessary expenses like utilities, or you can use it to pay for vacations or other fun activities.
If you cannot pay the balance when you move out of the home, profits from its sale will be used to pay what you owe with no risk to your other assets.
See Related: 401(k) Loan Pros and Cons Analysis (A Case Study)
Estimate your spending estimates
Estimate how much you presume to spend on an annual basis during your retirement. Create a detailed retirement budget to evaluate your monthly and yearly costs, and then use this analysis to formulate a retirement savings goal before you cease to work.
It is essential when you estimate your retirement expenditure to assume that you will have a long life in retirement. Factor in the fact that the longer you live, the more likely inflation will erode the value of your retirement savings.
Assess your retirement savings and income sources
Another item to assess to determine your retirement readiness is your total retirement savings. Verify your retirement savings to know whether they will cater to all your expenses based on your spending estimates.
Multiply your estimated annual spending with a number that can predict your life expectancy, to help you evaluate the amount that you need to save for your retirement. Consider all your retirement plans such as Roth and employer-sponsored plans such as 401(k).
If you count the total amount that you will receive from the various income sources, it can help you to better estimate how much you need to save.
If your retirement income sources such as social security benefits and pension or annuity income won’t be sufficient to cover your expenses, you may need to reduce your spending now or find an additional source of income to increase your retirement savings.
A plan administrator automatically pays out a set amount each month in a “traditional” pension plan which is also called a defined benefit plan. However, you will be responsible for managing your savings or hire someone to help you do it if you have saved through a 401(k) type plan.
Consider the tax factor on your retirement income sources
Another essential element to consider in your retirement planning checklist is the tax factor. Consider which types of accounts taxes will be due and preserve your tax-advantaged accounts like Roth IRAs for as long as possible and withdraw from taxable accounts like traditional IRAs and 401(k) plans.
Did you know that you can contribute more than $35,000 to your Roth IRA? Here is how to do a mega backdoor Roth IRA.
These are subject to minimum required distributions after age 70 ½ first. Some of my recommended wealth management tools can help you understand the implications of retirement.
Consider if you can work longer
Some retirees want to continue with work even after they hit their retirement age either out of necessity or pleasure. Even a small amount of extra source of income can dramatically improve your retirement cash flow.
If you earn from part-time work or a small business, you can increase your total income sources.
If you do want to continue with work, consider getting a job that is in line with your interests or hobbies to stay engaged and fulfilled.
Also, consider the work that is in line with your hobbies and interests so that you can enjoy and be inspired to work. Keep both your mind and body active since it contributes to more extended longevity and greater happiness. Personally, I don’t know if I will ever just stop working.
Factor the travel plans
Another item that can help you determine your retirement readiness is a travel plan. A key thing in the majority of retirees’ to-do-list is often to travel. Create more room in your retirement savings to the budget for travel to your preferred destinations.
Retirement is a great way to see the last items on your bucket list. It’s amazing to travel the world with obligations for taking paid time off!
Review your estate plan
Another item to review is your estate plan or a will which should be done at least after every five years to make it more up to date. Work with an estate planning expert and also consider creating your estate plan by writing down all your financial information and keep it safe in case of sudden death.
Communicate frequently with your heirs to ensure a smooth transition of estates.
Death, disability and/or potential relationship issues
Relationship issues are yet another element that can affect your retirement plan. Every element must be covered with retirement including death and/or disability.
These are tough points to talk about but they can be extremely detrimental to your retirement plans if not planned out. Talk with your partner about such scenarios and plan on what both of you would do.
If you have yet to achieve retirement here are some of our favorite retirement strategies to help you get there.
Conclusion on Retirement Readiness Checklist
To determine if you are ready to retire, this retirement readiness checklist will guide you. If you have all items in check, then you are prepared to retire regardless of your age.
I hope you can now evaluate your retirement readiness and this retirement readiness checklist is comprehensive enough to help you make that huge decision in your life. Here are the exact steps I took to save money in my Alerus 401(k).
Are you ready for retirement? What items are on your retirement readiness checklist? Please let u know in the comments below.
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