7 Things You Need to Know Before Retiring | Minster Bank
Minster Bank. Bank Close. Go Far.
Open Menu
 

RETIREMENT

October 28, 2024

7 Things You Need to Know Before Retiring

Retirement is more than just the end of work – it’s a significant financial transition. Your income and expenses change, so planning for long-term financial security is essential. By understanding key factors like income sources, expenses, and investments, you can ensure a secure and fulfilling retirement. This article outlines the critical steps to help you prepare for a smooth financial transition.

 

1. Projecting Retirement Income

A critical step in preparing for retirement is getting a clear picture of your anticipated retirement income. This income typically comes from several sources, including Social Security, pension plans, and personal savings in retirement accounts like 401(k)s and IRAs. Estimating how much you’ll receive from each source is essential to building a strong retirement strategy.

  • Social Security. Visit the Social Security Administration website (ssa.gov) to access your statement and get a personalized projection of your benefits based on your work history. Keep in mind that delaying benefits up to age 70 increases monthly payments. Also, consider spousal benefits and whether taking Social Security early (at 62) is suitable despite reduced payments.
  • Pensions. If you have a pension, thoroughly review its terms. Understand your payout options, including whether you will receive a lump sum or monthly payments. Survivor benefits, cost-of-living adjustments (COLAs), and integration with other income sources are important factors to consider. If your pension doesn’t include COLAs, be sure to factor in inflation to avoid your income losing value over time.
  • Retirement accounts. Your 401(k), IRA, and other personal savings will likely make up most of your retirement income. Using online calculators or consulting with a financial advisor can help you determine a safe withdrawal rate – typically 4% per year – to ensure your savings last throughout retirement. Be mindful of tax implications and potential penalties for withdrawing from certain accounts early.
  • Part-time work. To supplement your retirement income, explore part-time employment opportunities that align with your interests and skills.

2. Evaluating Retirement Expenses

Understanding your expenses is just as important as understanding your income. Many people underestimate how their spending might change in retirement. Mapping out your projected costs will help you avoid financial surprises down the road.

  • Basic living costs. Your primary expenses will likely continue to include housing, utilities, food, transportation, and healthcare. Some of these might change in retirement. For example, your transportation costs could drop if you’re no longer commuting daily. On the other hand, healthcare costs may rise as you age, and it’s crucial to plan for these potential increases. If you’re considering downsizing or moving to a more affordable location, this could significantly reduce your housing expenses – however, take into account the one-time costs of moving and selling your home.
  • Lifestyle expenses. Realistically assess your desired lifestyle and include costs for travel, hobbies, entertainment, and leisure activities. If travel is a priority, factor in airfare, accommodations, and activity costs.
  • Healthcare costs. Medicare will likely become your primary healthcare provider. It’s important to familiarize yourself with Medicare Parts A (hospital insurance), B (medical insurance), C (Medicare Advantage plans), and D (prescription drug coverage). Also, be aware of the gaps in coverage that Medicare doesn’t address, such as dental care, vision, and long-term care. You may want to consider a Medigap policy to fill these gaps and protect your savings from unexpected healthcare costs.
  • Long-term care. Research long-term care insurance options to protect your assets in case of extended health needs. Consider the potential costs of assisted living or nursing home care and their impact on your savings.

3. Crafting a Retirement Budget

A retirement budget is your financial road map. It should include your expected income and expenses and provide a framework to ensure your savings will last. Budgeting for retirement is different from budgeting during your working years because it needs to account for longevity, inflation, and the possibility of unexpected expenses.

  • Inflation. One of the biggest threats to your retirement savings is inflation. Over time, the purchasing power of your money will decline if your income doesn’t keep pace with inflation. Use inflation-adjusted budgeting tools to project your future expenses and ensure that your budget reflects potential increases in living costs.
  • Emergency fund. No matter how carefully you plan, unexpected events like medical emergencies, home repairs, or major life changes can occur. Maintaining an emergency fund ensures financial flexibility and peace of mind.

4. Ensuring Your Legacy: Estate Planning

Estate planning ensures that your financial legacy is protected and distributed according to your wishes. It goes beyond simple wills – your estate plan should be comprehensive and regularly updated as your financial situation and family circumstances change.

  • Will and trusts. Start with an updated will that clearly outlines how your assets will be distributed. You may also consider establishing trusts to help avoid probate, minimize estate taxes, and manage your estate more efficiently. Work with an attorney to ensure that your legal documents reflect your wishes.
  • Power of attorney and healthcare proxy. Designate a trusted person as your power of attorney (POA) to manage your finances should you become incapacitated. Additionally, assign a healthcare proxy to make medical decisions on your behalf. These legal protections will ensure that your wishes are carried out even if you are unable to make decisions yourself.
  • Beneficiary designations. Regularly review your beneficiary designations for retirement accounts, life insurance policies, and other financial assets. These designations override your will, so it’s critical to make sure they reflect your current wishes.

5. Managing Debt Wisely

Excessive debt can strain your finances when you enter retirement. Take steps to reduce debt and free up more income for your retirement years.

  • Prioritize high-interest debt. Entering retirement with excessive debt can strain your finances. Take proactive steps to reduce debt, freeing up more income for your retirement.
  • Refinance your mortgage. If you still have a mortgage, you may want to consider refinancing to a lower interest rate before retirement. Some retirees also choose to downsize or move to a more affordable location to reduce housing costs and unlock home equity.

6. Reviewing and Adjusting Your Plan Regularly

Retirement planning is not a one-time event. Review your plan periodically or whenever you experience significant life changes, such as marriage, divorce, the birth of a grandchild, or health changes. Monitor market conditions and adjust your investment strategy as needed to ensure you’re staying on track toward your goals.

7. Seeking Professional Guidance

Retirement planning can be complex, but you don’t have to navigate it alone. Financial advisors, tax planners, and estate attorneys can provide valuable insights and strategies tailored to your unique situation. Working with professionals helps ensure that your plan is both comprehensive and flexible enough to adjust to life’s inevitable changes.

Meet our wealth management advisors.

Retirement is an exciting new chapter of life, but to enjoy it fully, you need to prepare financially. If you have questions or want more information, reach out. Our experts are here to help.

Categories


Close Form

Online Banking Login

Questions? How can we help?