10 Things To Do Before Retirement

1) Prepare a balance sheet (assets versus liabilities).

Assets include possessions of value, such as cash, real estate, and investments. Also, add things such as IRAs and, if you decide to stay in your home, your home’s current value (less any outstanding liens). Liabilities are your debts and legal obligations – these include your mortgage, car payments, credit card debt, and other debt payments, like insurance.

2)  Get rid of debt.

In a perfect world, you should head into retirement with zero debt. Consider going after debts with the highest interest rate first and paying off your mortgage last since it is probably the lowest rate. According to radio personality Dave Ramsey, debt must be eliminated as soon as possible, giving you control over your most powerful wealth-building tool, your income. It is difficult to pay off debt in retirement.

3) Assess life insurance needs.

How much life insurance is enough? That depends on individual circumstances. Most experts recommend having seven to 10 times income.

4) Look into long-term care insurance.

This coverage provides a resource to pay for extended care; it can also make the difference between staying in one’s home comfortably and expending retirement benefits on long-term care. Depending on the policy, the benefit might pay for care received at home from a non-skilled provider such as a family member. The policy could also provide for further care received in a facility as well. Just like any other type of insurance, long-term care insurance varies in price and benefits. Visit Tammy Flanagan’s article at www.govexec.com for an excellent overview.

5) Review your estate plan.

Everyone should have a current and valid will, power of attorney, and advanced medical directive. One mistake is not having updated beneficiaries on retirement plans or the estate. Remember, your goal is to ensure your wishes are carried out. For this to happen smoothly, you should have in place instructions stating who, what, and when someone is to receive something of yours — all with the least amount paid in taxes, legal fees, and court costs.

Consider this from estateplanning.com:

A will provides your instructions, but it does not avoid probate.

Jointly-owned property and assets that let you name a beneficiary are not controlled by your will and usually will transfer to the new owner or beneficiary without probate. But there can be problems with joint ownership, and avoidance of probate is not guaranteed.

A revocable living trust is the solution recommended by many professionals. It can avoid probate at death, prevent court control of assets at incapacity, bring all assets into a single plan, provide maximum privacy, is valid in every state, and can be altered at any time.

6) Prepare a financial plan.

Connect with a trustworthy financial professional to map out your retirement goals. Consider wants versus needs first and decide how you can cover the basics. Prioritize extra items or luxuries (i.e., hobbies, eating out, and travel). And start saving early: financial advisers typically recommend saving 10% of your gross salary for retirement, including employer contributions to 401(k) accounts. If you didn’t start saving until your 30s or are worried about Social Security, try saving 15%.

Your biggest concern? Outliving your income.

7) Prepare a retirement budget.

Review your expenses monthly at least six months before retiring – earlier is even better. Some costs may go down during retirement, such as food cost (lunch), commuting (gas), and clothes (work attire). However, many individuals underestimate how much traveling will cost in retirement and see increased medical costs.

Points from investopedia.com:

  • Think about changes that will impact your budget, both positively and negatively.
  • Decide how much money you need to live comfortably. Don’t use your present salary as a guideline. Instead, think about the type of lifestyle you would like to have after you retire.
  • Think about payments or debts you will no longer have after retirement and plan your budget accordingly.
  • Plan for a long retirement – at least 20 years.
  • Take taxes and inflation into consideration.
  • Start your plan as early as possible; re-evaluate within five years of retirement.

8) How will you spend your time?

Consider your plans for the first year of retirement, and then the rest of your retired life. What is your ideal? While it may seem hard to fathom, many people become bored after retiring. It’s OK (even exciting!) to go back to school or re-enter the workplace, even in a part-time role. But you’ll want to plan for new hobbies, travel, volunteer work, or added school/work expenses. The bottom line – what activities do you need in your life to thrive? And how much will those activities cost?

9) Cash Reserves.

Consider opening a line-of-credit to boost your cash reserves to cover at least six months of living expenses. One strategy is to hold several years of cash in a reserve account to accomplish spending goals. Additionally, before retiring, try keeping 3 to 6 months of living expenses in an emergency fund. This strategy helps you to avoid incurring debt if faced with a sudden expense. After you retire, plan for an even bigger cash reserve. If you draw money from your retirement nest-egg, have enough cash available to cover at least a year’s worth of living expenses.

10) Evaluate sources of income and revise your investment strategy.

It may be beneficial to tap into non-qualified money first, tax-deferred funds second, and, finally, tax-free accounts. Find out from your tax advisor what makes sense for you. A financial planner can also assess your risk tolerance and recommend the right approach to meet income needs during retirement.

Sources: Chicago Tribune; US News Money; eHow Money; Dotdash.com (Investopedia.com); Bankrate.com; Estateplanning.com.

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