The ideal age for retirement varies with each person and situation. Some folks count the days until they can leave work. Others, require either daily stimulation or money that keeps them in the employment pool as long as possible. Regardless of your circumstances, there are 4 general considerations you should address before taking the big leap.
How do you replace your income? For many households, this is the critical question, and one that needs to be attended to for several years before retirement. The path can go in several directions, ranging from redeeming dividends from investments, getting funds from residual income such as rental property, working part-time, or even cashing out some investments. For most people, the “income question” is answered by a combination of revenue streams, and can also change over time. Many financial planners recommend the “4% percent rule” — the amount of funds that a retiree should plan on withdrawing each year from their total retirement nest egg.
How do you cover health care? Health care coverage is another critical factor, because the financial stakes are so great. According to one recent study, a healthy couple just reaching retirement age can reasonably expect to spend over a quarter million dollars in Medicare premiums alone. Households that fail to plan appropriately run the risk of financial disaster. For many retirees, Medicare and group health care retiree programs are the primary sources of funding. For others, marketplace solutions including the Affordable Care Act, are viable options. Individuals in low-income households may qualify for Medicaid.
How will you spend your time? Naturally, the primary goal for retirement years is to achieve a sense of happiness and achievement. It should be a stage of life for individuals to enjoy as fully as possible. But a number of factors come in to play here as well. The decisions you anticipate in areas such as housing, geographic location, active lifestyle, social life and bucket list items will all determine both quality of life, and one’s ability to afford it. Taking time long before retirement to anticipate what the golden years will look like makes achieving that vision much more likely.
What’s your “Plan B?” It’s one thing to plan for the best, but what happens if unthinkable things occur in retirement age? Chronic illnesses, natural disasters and other unexpected occurrences can wipe out a lifetime of savings in a hurry, without proper safeguards. Umbrella insurance, emergency accounts, residential contingency plans like downsizing or moving in with relatives, should all be given some advance consideration. It’s always better to have emergency plans and not need them, than the reverse.
Retirement should be a fulfilling and meaningful time in a person’s life. Advance planning increases the likelihood that this will be the case.