Are you getting excited about your upcoming retirement? You should be! The next chapter of your life is about to begin, and you can make it whatever you want it to be. But how do you get there from here?
Define Your Retirement
What will your retirement lifestyle look like? Where will you live? What will you do with your time? Knowing these answers will help you understand what your retirement lifestyle will cost.
Determine You’ll Have Sufficient Income
Your income will be a combination of your Social Security benefit, any defined benefit pension or annuity income, and withdrawals from your retirement accounts.
•Social Security – Your benefit will be based on your history of earnings and retirement age. Log onto www.ssa.gov, create a login ID and password, and then check your projected benefit for the age at which you plan to retire. You may retire as early as 62, but you will receive a larger benefit for every month that you delay until you reach the age of 70. Consider delaying benefits to receive a bigger benefit.
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•Defined Benefit Pensions or Annuities – Add any pension or annuity income you will receive to your Social Security benefit. Remember that most pensions will not be inflation-adjusted, so what you receive in the early years will buy fewer goods and services as you age.
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•Retirement Plan Withdrawals – According to the 4% withdrawal rule, your balance should last 30 years if you limit withdrawals to 4% of your balance in the first year, keep the money invested, obtain a 2% greater than inflation rate of return, and increase your withdrawal amount by 3% each year. This means that $100,000 will give you $4,000 of income and $1,000,000 will give you $40,000. If you retire before 59.5 years old, you will need an exception to the qualified distribution rule to avoid a 10% penalty on your account withdrawals.
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Add up these income sources. Is it sufficient to fund your desired retirement lifestyle? If not, consider pushing retirement back a year or two. This will allow you to save more,
increase your earnings history, receive a bigger
benefit from Social Security, and reduce the
number of retirement years you must fund.
Design Your Healthcare Plan
For years, your healthcare has been provided by your employer. Now it will be up to you. If you are retiring before 65 years old, you will have to secure healthcare through a spouse’s work, COBRA, or the Health Insurance Marketplace. You can estimate your cost at the Marketplace by going to www.healthcare.gov and clicking on “Browse Plans and Costs.”
If you are 65 years old, go to www.medicare.gov to find a Medicare plan that works for you. You will choose between Traditional Medicare (Part A, B, D, and Medigap) or Medicare Advantage (Part C), which may be less expensive, but will have limitations and restrictions.
Defend Your Balance
As you approach retirement, you have less time to wait out a big market downturn. Consider becoming more conservative in your retirement account investments by gradually shifting from stocks to bonds. Conventional wisdom suggests an aggressive investor take a 60% stock portfolio into retirement, while a conservative investor takes a 30% stock portfolio into retirement.
Determine How You Will Manage Your Money
There is a wide spectrum of options for managing your money in retirement. You may leave it in your company plan or roll it into an IRA. You can manage it yourself or pay a professional to do it for you. Consider how active you wish to be in managing your money.
Did You Know?
We provide personal and uncompromised financial wellness advice on all money matters – without any hidden sales angles. Our advice is always conflict-free, meaning we won’t make money off your investment decisions.
Our sole desire is to help you achieve the Work-Life-Money Balance that leads to strong financial futures and more fulfilling lives, inside and outside of work. Visit our website, FrancisWay.com to explore the features available to you in your “Participant Portal” or call 866-232-6457. Then, book a meeting with your financial planner!
