Retirement doesn’t mark the end of a professional career but rather the beginning of an important life event. Retirement planning is critical to ensure a comfortable retirement, both financially and personally. It is an extensive process and managing it will be an ongoing responsibility that has to be carried out after the retirement as well. Let us see how you can prepare for retirement and be assured of a comfortable life in your golden years.
7 Tips to Prepare for Retirement
- Understand Different Retirement Plans
There are a number of retirement plans offered by businesses. Some of them are 401(k), IRA, Roth plans, SEP Plan, Employee Stock Ownership Plan (ESOP), etc. These retirement plans are designed by businesses to help their employees save money for retirement. Understand all these plans carefully as each plan serves a different purpose from another plan. Choose the ones that suit you the best.
- Convert All your Savings to an Income
Look at the different retirement income options such as annuities, RRIFs and unsheltered savings. Develop a plan accordingly. This will help in ensuring that you have an income right from day one of your retirement. Review your investment goals and make adjustments if necessary. Consult with your financial advisor.
- Make a Retirement Budget
Creating a retirement budget will offer you a clearer picture of what to expect when you retire. Calculate how much money you would need to make ends meet. Run this number against your monthly income and check if it matches your financial needs. Determine how much your retirement lifestyle will cost you every month and consider the amount of debt you have, if any. Determine how much retirement income you need to set aside to clear off the debt sooner. Having these numbers will help you plan in a better way. If your monthly retirement income is falling short, then you have to come up with ways to cut current expenses, save more or figure out ways to boost your income in retirement.
- Clear All your Debts
It is crucial that you do not retire with debts looming over your retirement life. Ideally, pay off all your debt, credit card or education loans, and mortgages before you retire. You can improve the retirement budget by owning a mortgage free-home by the time you retire. Pay off all the higher interest loans first and keep contributing to the retirement savings plan at the same time.
- Determine When to Collect your Social Security
Even if you have mapped out the financial route for your retirement diligently, you might need the Social Security benefit at some point, probably to pay for the essentials or other financial needs. The age at which you start collecting the Social Security will directly impact on how much you will receive in the monthly benefits. The later you claim Social Security in your retired life, the greater you will benefit.
- Review the Insurance Needs
Your insurance needs will mostly change as you get older. If you have fewer dependents and debts, you might not need as much life insurance coverage as compared to what it might have been a decade earlier. On the other hands, if you have health issues, then you might want to consider health or critical illness insurance and long-term care insurance. By learning about insurance planning, you can be clearer of your retirement needs. It is crucial to ensure that you have enough insurance.
- Review your Will and Powers of Attorney
Make a will and determine who will have the power of attorney before you retire. Having a will is essential to make sure that your estates are divided amongst the family exactly the way you intended to and that your death won’t create any legal issues or any kind of administrative burden to your family. If there is no will, the court will appoint someone to distribute your estate based on a formula set in the family laws and provincial estate. Ensure that you have a power of attorney which is a legal document that consists of the name(s) of someone who has the power to make important decisions, financial or otherwise, if you are not in a physical or mental condition to make them yourself. Name someone you trust to make fair decisions and who can carry out your wishes the way you envisioned.
Don’t procrastinate when it comes to retirement planning to ‘some other time’ as you won’t be able to catch up and make up for the lost time.