Entering your 60s could mean you're getting ready to reap your financial harvest. But, after decades of careful spending and saving, you may still be hesitant to say goodbye to full-time employment. If you're still carrying high-interest rate debt, making a hefty mortgage payment, or wondering if you have enough money in savings, delaying retirement might be a good idea. Before you exit the workforce, reassess your finances and be prepared to reboot your retirement plan, as needed.
Here are 10 tips to help ensure you're ready for your next financial milestone, even if you decide to continue working.
- Assess Your Readiness
Before you can determine if you have the financial strength to support a retirement lifestyle, estimate how much money you'll need to cover your remaining years. Use the Social Security Administration's Life Expectancy Calculator, which shows the average number of additional years you can expect to live based on your gender and date of birth. Compare this figure with your retirement savings plus anticipated retirement income to gauge whether you'll have enough money to last your remaining years.
- Refresh Your Budget
Living within your means is necessary regardless of your age. Calculate expected retirement expenses and income now to help set realistic expectations. Even if you no longer have a mortgage, a different expense might replace it, such as healthcare costs. Failing to plan or budget for retirement-related costs could put you in a financial bind and lead to unnecessary stress. Reassess your budget and lifestyle expectations to allow for this and other expenses.
- Merge Your Retirement Accounts
Merging multiple retirement accounts into one account can simplify money management. Save time and stay organized by consolidating your retirement accounts. Log into one account to keep tabs on balances, adjust asset allocations, and make withdrawals. If you keep your accounts separate, you'll need a game plan to ensure you take the required minimum distributions (RMDs) one from each account. Failure to take timely RMDs from each account could result in penalties. Speak with a tax professional to help determine the best order of distribution based on your account holdings.
- Lower Your Portfolio's Risk
Asset allocation will probably need to shift to less risky investments based on your goals and retirement timeframe. For example, rebalancing your portfolio by decreasing stock holdings and shifting to more conservative investments such as bonds and money market accounts may be a way to increase cash reserves and protect potential gains as you approach retirement. A financial advisor can review your portfolio and offer additional guidance.
- Delay Your Social Security Benefits
While you can start receiving Social Security retirement benefits at age 62 doing so will reduce the amount you could have gotten by starting at a later age. The maximum monthly benefit you receive depends on several factors, one of the most significant being when you decide to claim benefits. For example, the maximum benefit you can receive based on your Retirement Age1 in 2020 varies significantly:
- Retire Early at Age 62 — $2,265
- Full Retirement Age* — $3,011
- Retire Late at Age 70 — $3,790
Delaying when you start accepting payments can help lock you into a higher lifetime payment tier. Remember that these payments may only increase by a small percentage point each year to account for increases in the cost-of-living adjustment (COLA). For example, COLA only increased by 1.6% in 2020.
*Your full retirement age is based on when you were born. Use the Social Security Administration's Retirement Age Calculator to determine how receiving benefits at different ages applies to your specific situation.
- Apply for Medicare
Save on expenses when you use Medicare benefits. This government program can help cover hospital, medical, and prescription drug expenses for people age 65 and older. However, you can sign up for benefits as early as three months before you turn 65. Failing to sign up for certain types of Medicare coverage when you're first eligible could mean you'll have to pay a late enrollment penalty. Understanding coverage features will allow you to compare costs against other health insurance options and identify where to fill the coverage gaps. Learn more by visiting medicare.gov.
- Purchase Long-term Care Insurance
The U.S. Department of Health & Human Services claims that two-thirds of today's 65-year-olds may need long-term care support. Covering the annual costs of in-home care, assisted living, or even nursing home care can quickly drain your retirement savings. But long-term care insurance can help protect your finances. Explore your coverage options before you turn 65. The longer you wait to secure a long-term care insurance policy, the more you may have to pay in annual premiums. Get the help you need navigating through options available with a SchoolsFirst FCU financial professional.
- Pay Off Any Lingering Debt
Paying off loans, credit cards, and other consumer debt before entering retirement allows you to direct more money toward your retirement savings. Develop a strategy to pay debt off. Once your debts are paid, you can redirect those funds to support other aspects of retirement planning. If you need help with debt management, visit GreenPath Financial Wellness for more tips and one-on-one counseling.
- Consider Other Sources of Investment Income
Stocks and bonds aren't the only choices for creating income throughout retirement. Annuities can create the additional cash flow you need to increase your income. Many people find the lifetime guaranteed income available with this investment product worth considering.
- Check Your Estate Plan
When was the last time you reviewed your estate plan? Do you have an estate plan? If you haven't created one, now is a perfect time. An estate plan can offer peace of mind. If you become incapacitated or die, decisions related to your health, assets, and finances will be handled according to your wishes.