10 THINGS TO DO BEFORE YOU RETIRE: PLANNING FOR THE BEST BY PLANNING FOR THE REST

ENTERING THE NEXT PHASE

We have helped many clients go through one of the biggest transitions in their lives: from work to retirement. While most people share the dream of retiring, it looks different for everyone. Whether you want to travel the world, spend your days on the golf course, or enjoy more time with your family, you can take several steps before retirement to ease the transition, address potential weaknesses, and achieve financial peace of mind. Here we’ll address ten important actions to consider taking before you start the next exciting phase of your life.

1. VISUALIZE YOUR RETIREMENT

You’ve probably been dreaming of retirement for years and have a pretty good idea of what it will look like. Whether that means becoming a globetrotter, spending more time with loved ones, or pursuing passions, decide what retirement means to you. Do you want to move closer to family? Add it to the plan. Always wanted to cruise the Mediterranean? Write it down. Want to go back to school? Let’s factor it in. Having a written list offers several advantages. Besides helping you nail down what you really want and prioritizing those desires, it gives you a sense of what life can look like for you after retirement. It also highlights potential holes in your finances that could change your retirement plans. While you might not be able to do everything on your list, recording your vision can help you realize your dreams without jeopardizing your retirement.

2. REVIEW YOUR SOCIAL SECURITY BENEFITS

For many, timing retirement with Social Security income is an important consideration. Before you turn in your notice, know what to expect from Social Security and how you might be able to maximize your benefit. For example, taking your Social Security benefit before your full retirement age (FRA) means you will receive decreased monthly benefits. On the other hand, your benefit increases by as much as 8% each year after your FRA if you wait to collect, up to age 70. If you haven’t already, set up an online account with Social Security to review your statement. Have your advisor run a Social Security analysis to determine what strategies might best benefit you and your family over the long term, whether you plan to retire at age 62 or 70.

3. ASSESS YOUR NET WORTH & CASH FLOW

Before you retire, you should first determine if your financial situation is in line with your needs. Start by assessing your net worth, which is the sum of all your assets (investments, cash, real estate, personal property, etc.) less the sum of your liabilities (mortgages, loans, other debt). Consider what your cash flow will look like once you are no longer receiving employment income. Does your retirement income (pensions, Social Security, retirement account distributions, etc.) replace your earned income? Factor in any new expenses that might come in retirement (such as rising health care costs), and review any that may no longer apply (e.g., fuel for long commutes you no longer have). You might consider paying off or refinancing your mortgage to maximize cash flow.

4. CREATE A RETIREMENT BUDGET

Just as keeping track of your income and expenses during your career was important, monitoring your retirement budget is critical to the success of your plan. Certain retirement expenses, like traveling, will diminish over time as you age, but medical expenses, including for medications, are likely to rise. Once you have an idea of your net worth and cash flow, sketch out a model budget. Account for recurring bills, anticipated one-time costs, and any new expenses (e.g., Medicare supplement premiums). Over time, your dynamic financial plan will change along with your situation. Stress-test your budget with the help of your advisor to ensure that your finances are ready to support your goals.

5. SET ASIDE CASH

Having an emergency fund with six months’ worth of living expenses, including enough to cover debt payments, can be a lifesaver during times of distress or uncertainty, whether you are involved in a weather catastrophe or an issue comes up with the payment of your Social Security, pension, or other retirement income. Knowing you have an easily accessible resource in times of trouble can help you sleep well at night, especially when you are no longer earning income.

6. STRATEGIZE FOR MEDICARE

Whether you are already on Medicare, participate in your employer’s group health insurance, or pay for an individual plan, figuring out your health insurance situation moving forward is a huge step towards retirement. If you are still using your employer’s health insurance but qualify for Medicare, now is the time to look into enrollment and consider supplement programs. If you don’t qualify for Medicare yet but are considering early retirement, be sure to factor in the cost of individual insurance you might need before you do qualify. If you are already on Medicare and have a supplemental plan, review the costs and benefits and factor them into your retirement budget.

7. UPDATE YOUR ESTATE DOCUMENTS

Whether you’re already retired, near to it, or years away, it’s always a good time to review your estate and ensure that your documents (wills, trusts, power of attorney, designation of health care surrogate, etc.) are up to date and accessible. Consider how your legacy will be distributed and update assigned beneficiaries on all your retirement and transfer-on-death accounts. Review life insurances you have to ensure that proceeds are set to go where they need to be. Some people even take the time to write a letter to family to include with their estate documents that details their wishes and thoughts—such letters may not be legally binding, but they can be a great way to help your heirs understand your intentions while managing your estate.

8. CONSIDER LONG-TERM CARE STRATEGIES

No one likes to think about the worst-case scenario, but, when faced with it, no one can deny the relief of having prepared in advance. Depending on your situation, it might be prudent to consider long-term care funding options. Even if you didn’t purchase long-term care insurance before edging into retirement, there are several different strategies available. The last thing any retiree wants is to spend their final years in a nursing home, but knowing that you have set up bulwarks against financial disaster in case it happens can bring you peace of mind.

9. DECIDE HOW YOUR DAY WILL LOOK

Retirement isn’t just about the big things, like taking a once-in-a-lifetime tour of Europe. Having a purpose when you wake up every morning, especially if it’s something you’re excited to do, is crucial to maintaining health, well-being, and drive. For many people, work is the primary source of their socialization and activity. The change in retirement can be drastic. Knowing your passions—or being open to new ones—and looking forward to following them can make your retirement that much more successful. Want to explore a hobby? Check out clubs and groups in your area. Interested in taking on a part-time job? Start scouting for opportunities at places you would enjoy working, talk to managers and business owners about flexibility, and consider becoming a consultant in your field of expertise. Thinking of volunteering for a favorite nonprofit or charity? Reach out to the organizers for information on what it would look like to help. In communities like Sarasota, nonprofits such as the Osher Lifelong Learning Institute (OLLI) offer a range of classes for retirees and eager students who want to keep their brains active and their social calendar full. Now is the time to pursue interests or projects you were too busy to do before, whether that’s learning an instrument, writing a novel, or getting your pilot’s license. Maintaining a community, having purpose, and staying connected can bring a sense of fulfillment and joy to your retirement and offer new opportunities.

10. TALK TO YOUR ADVISOR

Keeping your information updated can make the difference between a retirement in which you have to take care and a retirement that takes care of you. Your advisor can help you organize your data, monitor your situation, and adjust your path to keep you heading in the right direction while offering observations, suggestions, and useful referrals along the way. Your advisor can guide your investment portfolio allocation and strategies to accommodate future income and capital preservation needs. Furthermore, when it comes time to take distributions, your advisor will collaborate with you to strategize withdrawals from your accounts to help you maintain sufficient cash flow and keep your plan on track.

The stage before retirement comprises a lot of moving parts, but being prepared can facilitate the transition and avert potential plan deficiencies. Our team of advisors is excited to help you plan for this newest adventure. If you’re nearing retirement, it’s time to talk to Day Hagan.

Sincerely,

Natalie Brown, CFP®
Director of Client Services
Day Hagan Private Wealth

—Written 09.23.2020.

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