As the baby boomers reach retirement age, many find themselves unprepared for the changes that lie ahead. Planning for the future doesn’t need to be overwhelming. If you are nearing retirement age (or want to start planning ahead), here are a few things to keep in mind as you prepare for and plan your retirement.
Make a Will
As you start to review your investments, retirement accounts and social security benefits, you should also make sure you have a will. If you don’t have one, now is the time to sit down with a lawyer and write one. If you already have a will, make sure that it stays up-to-date. Wills need to be updated due to a variety of reasons including a birth, marriage, divorce, move to another state, etc. Often an out-of-date will can cause more problems than not having a will at all, so make sure you stay on top of any changes that need to be made. Since you’ve worked so hard earning your wealth, make sure your family will be taken care of the way you intended.
To know whether you have enough saved, you need to compare your expected income to planned expenses and create a retirement budget. Keep track of your current spending and include any known future vacations to get a sense of what your expenses will be like during retirement. For your income, add the government benefits you will receive (such as Social Security) to what you have in your 401k, IRA and/or any other retirement accounts. To help estimate these amounts, try using a retirement calculator like the one on CNN Money. Once you know these values, you also must estimate how long your savings will last you. Most retirement experts say you should be able to safely use 4% of your savings each year so that your money will outlast you.
If you find that your expenses will be greater than your income, you have two options. The first is to see where you can cut back in your expenses. Maybe cut back on the amount of travel or consider retiring somewhere cheaper. The other option is to supplement your income. To do this, consider picking up a part-time job during retirement or try saving more money in your retirement funds. While you can usually only contribute a maximum of about $16,500 to your 401k before age 50, that maximum increases to $20,500 after age 50. If possible, you can also consider delaying retirement by a few years that will allow you to save even more in your fund.
In planning for retirement, you need to consider where you want to live. Do you want to stay in the comfort of your own home, move to a smaller place or sip Mai Tais in the Caribbean? This living situation can be a large factor in estimating your expenses and can affect your other retirement plans. For example, if you want to visit your family in the Mid-West a lot, it’s going to be easier and cheaper to do so if you’re living in Indiana versus Bermuda.
If your home is fully paid off, many people opt for staying put. This way, they don’t need to consider paying a mortgage or rent during retirement. Often this can also be more comfortable as you already have established yourself in that location.
If you’re looking for a change of pace, try looking at a smaller home that won’t require as much maintenance. These will be cheaper and you will save on housekeeping and yard work. Keep in mind that metropolitan areas will be more expensive in general and adjust your expenses accordingly. For some ideas, check out Forbes’ list of the best places to retire.
While you’re looking at where to live, also consider looking into nursing homes for the future. Depending on the type of home, the prices can range dramatically and this can be a good way to make sure you have the funds saved now.
Retirement does not need to be complicated. For those who still have many years before retirement, continue saving so you will be able to have your dream retirement. For those who are soon to retire, make sure you have gone through this list so you can ensure a stress-free and enjoyable retirement.