Are You Ready for Retirement?

For many Americans, retirement may look different these past few years, A lot of retirees have less money than expected, and inflation is also digging into their retirement savings. The same retirement principles apply regardless of your financial situation:

  • Reduce spending.
  • Plan for surprises.
  • Make conservative decisions about your retirement savings.
  • Continue to earn income.

To help you tune up your retirement plan, here are some tips.

Be ready for an unplanned early retirement.

The reality is that many workers have to retire early. In 2019, nearly half of retirees left the workforce before their target retirement age, according to a 2019 Employee Benefit Research Institute (EBRI) survey. Sometimes it is involuntary, like layoffs or an unexpected illness.  

As a result, workers in their 50s and 60s should begin planning for contingency retirement. The time is right to start making an emergency retirement plan, even if retirement seems far away.

Don’t delay getting rid of your debt.

You should pay off your debt while you’re still employed. Prioritize eliminating credit card balances, student loans, car loans, and mortgages if you plan to retire within 12 months, or even if retirement is more remote.

In recent years, there has been a dramatic increase in the number of 60- and 70-year-olds with mortgages, credit card debt, and student loan debt. Having a fixed income makes paying down debt very difficult, so work extra overtime to ease the burden in the long run.

Develop a health insurance strategy

When Americans reach 65, they are eligible for Medicare; failing to enroll can result in penalties. Before your 65th birthday, enroll so that your coverage can begin.

Enrolling in Medicare is only the beginning of your retirement healthcare plan. According to Fidelity, a typical American couple will spend almost $300,000 on uncovered medical expenses during retirement. You should factor out-of-pocket expenses into your retirement plans since you’ll probably be paying them from your savings. If you retire before 65, you will also need to obtain it on your own until Medicare kicks in.

Maximize Your HSA Contributions

You can pay for health insurance premiums in early retirement or other uncovered expenses later in life by putting money away in a health savings account (HSA). Investing in an HSA now could provide you with an emergency fund for two or three decades, tax-free.

According to Liz Weston, a CFP, columnist, and author of several books, including The 10 Commandments of Money, health savings accounts offer a triple and sometimes quadruple benefit. Contributions are tax-deductible, money grows tax-deferred yearly, and withdrawals are tax-free if used for qualified medical expenses. In addition, many employers offer cash incentives for signing up.

Health savings accounts are generally tied to high-deductible health insurance plans, so they aren’t for everyone. According to Weston, they are a good option for healthy consumers and patients who frequently exceed their annual deductibles.

Know Your Retirement Income Options

At age 62, you can start collecting Social Security benefits. Once you reach age 59.5, you can start taking 401(k) distributions penalty-free. However, consider if it is too early, and both are better put off as long as possible for most people. After 72, most savers must take the required minimum distributions (RMDs).

The best way to make a long-term plan is with a financial advisor who understands the nuances of these choices, including their effects on tax and estate planning. Spending plans should be developed well in advance of retirement.

A financial advisor might suggest converting some of your retirement savings into Roth accounts. The conversion may result in extra taxes, but you can withdraw tax-free in the future.

You must maintain an investment strategy even as you spend your savings. For a lifetime of retirement, you should keep investing.

Do a Practice Run

Track your spending over the next year to provide a realistic picture of your income needs in retirement. Adjust as necessary-you may not spend as much on commuting when you aren’t working; maybe you’ll spend more on travel. You’ll find this helpful regarding what life may cost during early retirement.

Recheck your Crisis Risk Tolerance 

Is it possible to plan for such risks as those during Covid-19 for retirees and those nearing retirement? Currently, things aren’t easy. Due to historically low-interest rates, traditional safe retirement tools like certificates of deposit (CDs) and Treasury bonds offer paltry returns. This makes trying to preserve or grow wealth difficult. It becomes a bigger problem for retirees with a very limited nest egg; as a result, you may be more inclined to take on more risk. 

Consider rejoining the workforce.

Now’s a good time to consider how you might earn additional income in retirement by taking a part-time job, whether you’re already retired or making retirement plans.

It is a good idea to forge relationships that could lead to occasional consulting gigs in the future or to part-time work winds down if you plan to retire in the next year.

Consider turning a hobby or skill into extra income. Although the gig economy has flaws, it offers retirees plenty of opportunities to earn a little extra money. Consider renting out the basement on Airbnb or using a ride-sharing service now. Each additional dollar you earn can grow in value in a retirement account.

Postponing Retirement 

These retirement tips might make you feel hesitant about retiring. That’s OK. Considering the economic uncertainty facing the United States and the world, it might be wise to postpone your retirement plans. Postponement can grow your retirement account and enable you to retire at a more peaceful rate.