Retirement is something you’ve worked hard for. You’ve put in your time, saved, and made sound financial decisions that will allow you to spend your twilight years doing the things you enjoy most. If you’re headed towards retirement, consider a few of these tips to help make your financial transition as smooth as possible.
Know your expenses
Before you think about retiring, it’s important to be able to estimate your anticipated expenses, and determine how much you’ll need to set aside in order to maintain your lifestyle. This includes how much you’ll need to allot for housing, food, utilities, medical care, emergencies, and so on. These numbers will also be dependent on other streams of income, which will determine how much wiggle room you have for extras, like vacation.
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Budget
If you’re close to retirement, hopefully you’ve already gotten a handle on budgeting. If you haven’t, better late than never. Sticking to a budget will be particularly important if you plan on relying on passive income and your savings. Budgeting can also help avoid putting any large purchases on a high-interest credit card. Once you have a handle on your anticipated expenses and how much income you can expect each month, creating a realistic budget will be much easier.
Pinpoint income sources
If you’re planning on spending your retirement fly fishing, travelling through Europe and becoming a world class painter, never to work again, that’s fantastic… but you need to know where your income will come from. Once you’ve determined just how much you’ll need for retirement, you can begin to strategize by looking at your savings and what you can supplement using Social Security, IRAs and employer-sponsored retirement plans. When in doubt, get in touch with a good financial advisor or retirement planning advisor. They can help with financial planning, investments and recommend a good accountant for handling any tax preparation services you may need during retirement.
Simplify
Before you retire, it’s a good idea to clear all your debt. Pay off any outstanding credit card debt and, if possible, eliminate the remainder of your mortgage. With high housing expenses out of the picture you can simplify what you’ll need to maintain your lifestyle during retirement. Additionally, don’t put off home projects and repairs. While you may think you’ll have more time to do it during retirement, it makes more sense financially to knock it off your list while you’re still working. Complete any outstanding projects, such as kitchen upgrades and remodeling before you officially retire—just in case there’s any unexpected costs that spring up during the process.
Set goals
Whatever stage of life you’re currently in, setting and meeting financial goals is an important tool for creating both freedom and flexibility. Whether you’re saving for vacation or a new car, it’s important to set specific goals. You’ll want to jot down not only how much money you want to save, but the date in which you’d like to save it by, as well as what you plan to use it for.
Diversify
Deciding what type of salary deferment account to use can often be a bit confusing. Should you go with a 401(k), Roth 401(k), or what about a Roth IRA? Because your tax bracket defines how much you’ll receive when it’s time to cash out, choosing between these different account types can be difficult. However, unless you can predict the future, there’s no way of really knowing what your tax bracket will be in 10, 20, or 30 years. With this in mind, it’s not a bad idea to put your money in both a tax-deferred account and a Roth IRA. By storing up in across different account types, you’ll likely have a better range of options when it’s time to access them.
1 thought on “6 Things You Should Know Before You Retire”
You made a good point that passive income would one of the best ways to still get some cash flow even after retirement. One of my dreams is to travel around the world when I get older and I think that would be one of my goals once I retire. I think getting an retirement planning service as early as now would help a lot in securing myself for the future.