No more Mondays, no more bosses, no more uncomfortable work pants! Retirement is hailed as the relaxing reward after a hectic and dedicated work life. To make sure that your retirement is as comfortable as it looks in commercials, there are many things to address beforehand that will pave the way for smooth sailing once you hit your golden years.
Check out these five need-to-know things to do before your retirement!
#1 Learn how When You Retire Affects Social Security and Medicare
What age you retire directly affects the amount of benefits you receive from Social Security and Medicare.
You can receive benefits as early as age 62, but you will only get full benefits if you retire at your “full” (read: normal) retirement age, which varies depending on your birth year. The Medicare coverage you have to sign up for depends on your retirement age, so research that as well.
#2 Learn About and Start Using Retirement Savings Accounts
There are different types of retirement savings accounts, with varying pros and cons. The earlier you start saving, the more you’ll receive later. Instead of eating at a Michelin Star restaurant once a week, put that money in your savings account.
It could go towards a Thailand trip at seventy!
Here are a few types of retirement savings accounts with a short description:
- 401(k) – Some workplaces offer this plan, some don’t. Under this plan, your employer will match a portion of what you put into your 401k.
- Solo 401(k) – This plan is like a 401k, but a solo 401(k) is made for only one contributor. You could either be a business owner or self-employed. You can put up to $57,000 into a solo 401k with “catch-up” contributions allowed after the age of 50.
- IRA – If you have “earned income” (a salary, not government benefits or investment returns) you’re eligible for an IRA. You can contribute $6000 a year, or $7000 if you’re above 50. The deposited money is not taxed. The money you withdraw, which you need to start doing at around age 70, is taxed. If your income bracket lowers during retirement, there’s a good chance you’ll save money in taxes.
- Roth IRA – A Roth IRA is similar to an IRA. The difference is that the contributions to a Roth IRA are post-tax. When the contributions are withdrawn during retirement, they will not be taxed, and there’s no mandatory year requirement needed to start withdrawing. If you think your tax bracket will be higher during retirement, this is a good option for you.
#3 Create a Comprehensive Budget and Emergency Fund
A good way to circumnavigate the challenges of living on savings is creating a thorough, detailed and long term budget. If a financial advisor is a resource you can access, that is highly recommended.
And if the “candy for grandkids” section of the budget is a little higher than it should be, well, who’s going to tell? Also, create an emergency fund for the future.
#4: Consider A Reverse Mortgage
How does a reverse mortgage work? Essentially, money is lent based on the value of the owner’s home, with interest. The money the homeowner receives is less than or equal to the value of their home. When the owner sells the house, moves out, or passes away, the loan must be paid back, and it’s usually paid back from the money obtained from the sale of the house.
Given the current value of real estate, a reverse mortgage is a fantastic option if you plan to hunker down in a property throughout your retirement.
#5 Plan Your Vacation Early
Whether you want to reignite your flame in Paris or go on a summer road trip to the Grand Canyon, plan your vacation as early as possible to take advantage of the best offers and discounts. Make sure to take into account the potential costs of medical care.
If you can, try and factor yearly travel and vacation plans into your retirement budget. After all, now is the time to live your best life. And nothing quite beats the reward of traveling.
You’ve Reached For The Stars, Now Relax and Look at Them
If you’re looking at this article, you have lived, or will have lived, a robust pre-retirement life full of hard work. Your reward is ripe for the picking.
If you plan accordingly and adopt strict financial disciplines, you’ll be able devote your full attention to spoiling your grandchildren, fostering kittens, or visiting all the destinations you’ve dreamed about.