For most of us it is not about sunsets on sandy beaches and drinking Pina Coladas. Instead, it is a serious undertaking that requires careful planning and preparation. Failing to get your financial house in order before retirement can lead to big problems for seniors. Many people have had to return to full-time employment because they did not adequately prepare to leave the workforce.
However, if you take a few important steps, you can end your career comfortably and safely knowing that your finances are in good shape. This list of five important steps to take before retiring will help you do so.
1. Take advantage of the benefits for employees
Know what benefits are available to you at work before you retire. (Check with your HR department as many of us are not aware of all the benefits our employer offers.) If your dental care is good and you or another family member needs expensive implants and bridges, for example It would be wise to do this while you are still employed. You should also find out what your company's policies are on vacation and sick/personal days that you earned during your employment but have not yet used. If you are not allowed to cash out the extra time you retire, you should cash out those days before you leave.
"Employee benefits such as vacation and sick pay are earned benefits. Think of your total compensation as two parts, actual pay and earned benefits. If your company doesn't pay you for these benefits when you leave your job, it's wasted compensation if it's not used, " says Mark Hebner, founder and president of Index Fund Advisors, Inc. in Irvine, California, and author of "Index Funds: The 12-Step Recovery Program for Active Investors. "
Contribute the maximum amount to your workplace defined contribution plan? Anyone over age 50 can make catch-up contributions to a 401 (k) – if your plan allows it – to help the account grow before you start using it. The limit for 2017 is 6.000 $. Taking time to understand and take advantage of your employees while you are still able is a smart move.
2. Decide when you need to pick up Social Security checks
Social Security is an important part of retirement income for most people, and each of us needs to determine the best age to start Social Security benefits.
For Americans born between 1943 and 1954, the full retirement age is 66; then you can receive 100% of your benefits. (For those born between 1955 and 1960, the full retirement age gradually increases to 67 and remains so for those born after 1960.The earliest age you can start receiving Social Security is 62, but you will only receive 75% of your eligible benefit because you will collect longer by starting earlier. At age 65, you'll receive 93.3% of your benefit. It may be worthwhile to delay leaving the workforce until after your full retirement age: At 70, Social Security benefits increase to 132% of what you get at 66.
"An important consideration when deciding to take Social Security should be if you are still working and want to collect benefits before full retirement age. Essentially, you will be penalized if you earn more than the threshold allows ($1 is deducted for every $2 you earn over $15, 720), " says Carlos Dias Jr., Wealth manager at Excel Tax & Wealth Group in Lake Mary, Fla. (In the year you reach FRA, $1 is deducted for every $3 you earn above $41, 880 in the months before your birthday. After you reach FRA, you can receive benefits with no income restrictions.)
Social security is also affected by factors such as your age, the amount of your personal savings, whether or not you have an occupational pension, and whether or not you have a spouse who continues to work or has a pension. Regardless of personal circumstances, Social Security should be part of all retirement calculations and plans.
3. Pay off debt
The most obvious thing to do before retirement is pay off debt. Of course, a home mortgage is the largest debt for most people. To help pay it off faster, "consider refinancing the mortgage if your existing rate is higher than what is currently available. Avoid extending the term, refinance only for the remaining term if you can reduce interest costs. It can be more difficult to get a loan if you no longer have an earned income, " says Charlotte A. Dougherty, CFP®, founder of Dougherty & Associates in Cincinnati, Ohio.
You should also be sure to pay off other debts before retiring, such as car loans, credit cards, lines of credit and any student loans you took on for your children or grandchildren.
Regardless of the type of debt, it's best to be rid of it. A study by the Employee Benefit Research Institute in Washington, D.C., A 2015 survey found that Americans with an average debt load of 73% are in debt.Retire $221 and retirees on fixed incomes struggled to pay off their debts.
4. Make arrangements for health insurance
If you've always relied on your employer for health insurance, you need to figure out what to do when you retire. Will you purchase private insurance? What type of Medicare plan makes the most sense for you? Remember that Medicare does not cover dental care or vision care. (See Medicare 101: Do you need all 4 parts? and Medigap vs. Medicare Advantage: which one is better? for more on this topic.)
Do your due diligence This issue before you leave the workforce and know your options. As a senior, you – and your spouse or partner, if you have one – will eventually need to rely on the health care system.It is critical to procure the appropriate health insurance and make sure it is affordable for your budget. Not doing so can have dire consequences: A 2013 study published in the Journal of General Internal Medicine found that medical expenses incurred in the last five years of life bankrupted one in four American seniors.
5. Downsize Everywhere You Can
Moving from a house to a condo or apartment is most often mentioned when the financial discussion turns to downsizing. (For more information, see Downsize Your Home to Downsize Expenses .) Still, there are many areas of your life where you can downsize. And by downsize, we mean your spending. Consider going from two cars to one. Or cut cable and look at a cheaper TV and movie streaming service. How about telling your grown kids it's time they got a place of their own?
Examine your monthly expenses and find areas that need to be cut or downsized. This is an exercise every person should undertake before they retire. You'll probably be surprised at how you can cut your expenses and save money.