For many people retirement is a large unknown. How much to save and where to save is different for every person, lifestyle, health status, and location. This leaves many people wondering whether they are ready for retirement and the steps needed to transition their financial plans from a career to no longer working. Here are some tips that anyone can use to get started in this exciting transition.
How Much Have You Saved?
There is so much debate over how much money is needed to retire. Some say $100,000 is sufficient, while others purport that $500,000 is the minimum. Unfortunately there is no magic number. How much you need to save is extremely dependent on:
- Location of living- What is the cost of living where you are?
- Location of funds- Will you money still be earning for you?
- Debt- Have you paid everything off (mortgage, medical, car payments)?
- Medical expenses- Are you healthy now, or do you have family history of health complications later in life?
- Travel etc.- What do you want to do with your retirement? How much will it cost?
You Will Probably Spend More in Retirement
This goes against many beliefs. Often it’s thought you’ll spend less since you aren’t commuting, eating out as much, or spending money on your profession. With so much extra time, people often fill it with pleasures that cost money. Just be safe and create a plan with the assumption you will spend more. Here are areas where costs change in retirement
- Travel- An excess of time and the spreading out of children/grandchildren will ensure that you spend more traveling.
- Healthcare- Even with Medicare, it is going to cost more to keep your body and mind in top shape.
- Housing- Good news! Housing costs are usually significantly less in retirement with good planning.
Social Security, Medicare, and Insurance
This transition is often difficult for people. Social Security can kick in at 62 while Medicare is not available until the age of 65. If you are out of the workforce and receiving Social Security before 65, then the transition is much smoother. On the other hand applying for Medicare before you’re receiving Social Security can be a rockier transition. Make sure you prepare so there is no lapse in coverage. Other insurance considerations include:
- Car/Homeowners insurance etc.- These insurance are pretty straight forward and needs no transition.
- Longevity insurance- A product that isn’t perfect, but could benefit a subset of retirees.
- Long-term care insurance- This insurance isn’t cheap but neither is long-term care. The younger you get it, the less you’ll pay.
- Life Insurance- Many people opt to not carry life insurance through retirement. It may be a good option though if you question the financial security of your loved ones when you’re gone.
- Insurance across borders- Many people plan to expatriate upon retirement. Be mindful that every country has its own insurance laws. You could get a life insurance quote from Suncorp first, before traveling and realizing that Australia’s insurance options possibly don’t meet your needs
One of the best things you can do for your finances in retirement is to consolidate them. By the time you’re ready to retire you can often have money in multiple places. It is better to have all your money in one place and there is no penalty in doing so. Here are the benefits of consolidating:
- Make it easier on you- Less looking for all the places your money resides means more time you can spend making it work for you.
- Save more- Consolidating accounts curbs your spending habit according to research by KU School of Business.
- Make your family happy- If your loved one handles the finances, consolidating
Should you work?
Lots of people are putting off retiring because they still feel healthy, and their income supplements projects they are passionate about. From charitable donations to woodworking, these cost money and many potential retirees believe they won’t be able to afford them upon retirement. You can still participate in these loves it may just take a little restructuring.
- Donate time- As a retiree, you’re opportunity cost for donating your time is far less than donating money to causes. It could also be more rewarding at the end of the day.
- Turn your hobby into a small business- Just because you’re retired, doesn’t mean you can’t make money. Sell a portion of what you create to finance your past time.
- Be a consultant- If you could never see yourself leaving the industry you love then be a consultant for hire. Use all the knowledge and connections you’ve made over your career to stay involved and work on your own schedule.
Don’t be afraid of retirement. You’ve worked your whole life to get here. Now that you’ve planned well and considered contingencies you can retire with peace of mind. Finances change when transitioning to retirement, but so will everything else about your life.
The above article has posted by Amy Lewis, owner of the finance corner. For more details about Amy you can visit her social media profiles in below mentioned urls: