- Top 10 Retirement Tips For 2021
- 1. Be Ready for Early, Unplanned Retirement
- 2. Deal with Your Debt Immediately
- 3. Prepare a Health Insurance Strategy
- 4. Maximize Your HSA Contributions
- 5. Understand Your Retirement Income Options
- 6. Practice Retirement Spending Now
- 7. Did You Take Out a Coronavirus Hardship Withdrawal?
- 8. Reassess Your Post-Crisis Risk Tolerance
- 9. Consider Part-Time Work for Retirement
- 10. Should You Postpone Retirement?
- Can I Retire Early?
- Can I Retire Early? Three Early Retirement Options
- Option 1: Semi-Retire at Age 55
- Option 2: Retire Fully at Age 60
- Option 3: Build a Bridge Account
- Is Early Retirement Worth It?
- How to Retire Early
- Work With an Investment Pro
- How To Retire Early: 9 Steps That Could Help You In 2021
- 9 Benefits of Early Retirement
- How to Retire Early: Planning for Early Retirement in 2020
- Step #1. Determine the Lifestyle You Want in Retirement
- Step #2. Create a Mock Retirement Budget
- Step #3. Evaluate Your Current Financial Situation
- Step #4. Work Out Your Retirement Number
- Step #5. Cut Your Expenses
- Step #6. Pay Off Your Debt
- 1. The Debt Snowball Method
- 2. The Debt Avalanche Method
- Step #7. Earn More Money
- 1. Start a Side Hustle
- 2. Optimize Your Day Job
- Step #8. Invest Money
- Step #9. Track Your Progress and Hone Your Strategy
- Want to Learn More?
- Planning To Retire In 2021? Do These 7 Things Now
- 2. Consider how COVID-19 will affect your plans
- 3. Protect your assets from the market
- 4. Plan healthcare carefully
- 5. Shift your perspective from saving to spending
- 6. Re-establish your purpose
- 7. Plan to stay on top of finances in retirement
- Bottom line
- Learn more:
Top 10 Retirement Tips For 2021
For many Americans, retirement may look different in 2021 than it has in years past. The severe economic impact of the Covid-19 pandemic could push many people to consider retiring early, with less saved than they may need.
Whether or not your retirement plans are looking secure, the new year is a great time to review where you stand. Regardless of your particular financial situation, the same retirement principles apply this year as always: reduce spending, plan for surprises, make conservative decisions on retirement savings and Social Security, and keep earning income if you can.
Here are 10 tips to help you tune up your retirement planning in the new year. Some might sound familiar; some will sound brand-new, thanks to Covid-19. All of them are essential—as is getting started on them as soon as possible.
1. Be Ready for Early, Unplanned Retirement
It’s a fact of life—many workers are forced to retire before they want to. According to a 2019 Employee Benefit Research Institute (EBRI) survey, nearly half of retirees left the workforce before their target retirement age. Covid-19 has accelerated this trend, says Desmond Henry, a Topeka, Kansas-based certified financial planner (CFP).
“Sometimes it’s involuntarily, due to layoffs, or older workers who are at higher risk not feeling comfortable returning to their offices and potentially exposing themselves to the virus. Unfortunately, no matter what the case, the timing is earlier than many had planned,” says Henry.
That strongly suggests that workers in their 50s and 60s should start making contingency retirement plans. With luck, a vaccine-led economic recovery in 2021 will make jobs easier to find and layoffs less common. But hope is not a plan, so even if retirement seems far off, now is a good time to start making a break-glass-in-case-of-emergency strategy for early retirement.
2. Deal with Your Debt Immediately
The best time to pay off debt is while you’re still working. If you plan to retire within the next 12 months—or even if retirement is a more remote possibility—prioritize eliminating those credit card balances, student loans and car loans, and even mortgages.
The number of 60 and 70-somethings with mortgages, credit card debt, and student loans has skyrocketed. It’s very challenging to pay down debt when you’re on a fixed income, so put in the extra overtime while you can to ease the debt burden later.
3. Prepare a Health Insurance Strategy
Americans are eligible to enroll in Medicare at age 65—there can even be penalties for failing to enroll on time. Make a plan to sign up in the months leading up to your 65th birthday, giving the coverage time to kick in.
Medicare enrollment is only the beginning of your retirement healthcare strategy. Fidelity estimates that a typical American couple will spend almost $300,000 on things co-pays, additional premiums and other uncovered medical expenses during their retirement years. You’ll probably be paying any out-of-pocket expenses from your retirement savings, so you should factor them into your plans.
If you are forced to retire before age 65, you’ll also need to obtain health insurance on your own until Medicare kicks in. Can COBRA provide a bridge? The Affordable Care Act? Does your company provide some kind of retiree health coverage? Make a plan now, before these choices are forced upon you.
4. Maximize Your HSA Contributions
One way to pay for health insurance premiums in early retirement or other uncovered expenses later in life is with a robust nest-egg socked away in a health savings account (HSA). If you started funding an HSA this year, your contributions could grow tax free for up to two or three decades, providing a great pot of emergency cash later in life.
“Health savings accounts offer a triple and sometimes quadruple benefit,” says Liz Weston, a CFP, columnist and author of several books, including The 10 Commandments of Money.
“Contributions are tax-deductible, the money grows tax-deferred from year to year and withdrawals are tax free if used for qualified medical expenses.
Plus, many employers will contribute cash to the accounts as an inducement to sign up.”
HSAs are generally tied to high-deductible health insurance plans, so they aren’t for everyone. But Weston points out that they are a good option for both consumers who are very healthy, with few healthcare expenses, and for patients who often exceed their annual deductible.
5. Understand Your Retirement Income Options
You can start collecting Social Security benefits at age 62. But should you? You can start taking 401(k) distributions penalty-free at age 59 ½. Is that too early? Many people are better served putting off both for as long as possible. But by age 72, most savers have to start making required minimum distributions (RMDs).
There are some general guideposts for retirement spending, the 4% rule, but it’s best to make a long-term plan with a financial advisor who understands the nuances of these choices, including the tax and estate planning consequences. It’s best to get started on spending plans well in advance of retirement.
A professional might suggest you spend your last working year converting some of your retirement savings into Roth accounts, for example. You may face extra taxes upon conversion, but you’ll be able to make tax-free withdrawals in the future, which could make sense for your plans.
Even with all this talk of drawing accounts down, you still need to maintain an investing strategy: Retirement can last for decades, so you need to keep investing for the future, even as you begin to spend your savings.
“I to use a bucketing strategy with my clients, which involves planning your withdrawals with different time segments, or buckets,” says Henry .
One bucket might be for the next couple of years, which you’d accordingly invest very conservatively. “This ensures that (retirees) have a ‘war chest’ of safe money to survive a market downturn without having to sell their stocks at the lows,” Henry says. Another bucket might be intended for spending after 2030, so it can be put into riskier investments.
6. Practice Retirement Spending Now
A common guideline you’ll hear is that retirees should be prepared to replace 80% of their income in retirement. Rules of thumb can be useful, but this one is fairly random. It’s better to develop a plan around real spending needs.
Over the course of the next year, meticulously track your spending to provide yourself a realistic picture of your income requirements in the first year of retirement. Make adjustments as needed—you might not spend as much on commuting costs when you aren’t working; perhaps you’ll spend more on travel—but you’ll find this to be a good guide to what life may cost during early retirement.
On this front, there is a silver lining to the Covid-19 crisis.
“One positive I’ve seen from the pandemic is that discretionary spending has decreased because people are staying at home, and the savings rate is at an all-time high,” says Henry.
While this may help those behind on retirement savings catch up some, keep in mind that it may also mean spending during the coming year may not be a good metric for estimating future spending patterns.
7. Did You Take Out a Coronavirus Hardship Withdrawal?
The Coronavirus Aid, Relief and Economic Security Act (CARES) Act eased the rules for taking early withdrawals from tax-advantaged retirement accounts.
People who were impacted by Covid-19 were permitted to withdraw up to $100,000 from retirement accounts 401(k)s and IRAs.
CARES waived early withdrawal penalties, but you still owed any applicable income taxes on the amount—although you had the option to spread the tax bill over three years.
Liz Weston advises you to pay the tax bill all at once, if you can.
“If you took the withdrawal because you lost your job but you’re re-employed by the time your taxes are due, you might want to go ahead and pay the whole tax bill when you file your next return. That’s because your tax bracket is ly to be lower in 2020 than afterward” due to your temporary loss of income, says Weston.
Savers also have three years to repay the money into their retirement accounts, which prevents you from owing any taxes and, even more important, allows that money to get back to work compounding your investment returns for retirement. If you are planning to retire soon, you should focus on replenishing early withdrawals.
8. Reassess Your Post-Crisis Risk Tolerance
We’ve all been through a major trauma in 2020, and that included watching our retirement savings swoon. That’ll never happen again, right? Wrong, according to Bobbi Rebell, CFP and host of the Financial Grownup podcast.
“Be really honest about whether you could—and how you would—course correct if another ‘surprise’ a pandemic impacted your income streams,” says Rebell. “I would proceed cautiously and with a big safety net.
Desmond echoes the same concerns. “We’ve always faced uncertainty and that’s not going to change. It’s almost inevitable that a recent retiree will have to withstand multiple financial crises during their retirement, which is why it’s so important to prepare for them.”
How can retirees and those approaching retirement plan for risks this? It’s not easy at the moment. Old-fashioned safe retirement tools certificates of deposit (CDs) or Treasury bonds offer paltry returns, thanks to the historically low interest rates. That’s probably not going to change any time soon.
“This makes it tough for those trying to preserve wealth or generate income from their investments,” says Henry. “It’s an even bigger problem for those retirees who don’t have enough money saved for retirement and pension funds without enough capital to cover their obligations.”
He believes the low-rate environment is pushing people to take on more risk, which could lead to some “interesting asset allocation decisions” in the years ahead.
9. Consider Part-Time Work for Retirement
Whether you’re already retired or you’re making plans for retirement, now’s a good time to think about how you might earn additional income in retirement by taking a part-time job.
If you are planning to retire in the next 12 months, you should be forging relationships that might lead to occasional consulting gigs down the road or negotiating some form of part-time work wind-down.
“Are you going cold turkey or keeping some part-time work options?” asks Rebell.
Another option: Get to work figuring out how a hobby or skill might turn into extra income. The gig economy, for all its flaws, also offers retirees plenty of choices to earn a few extra dollars. Now might be the time to turn the basement into an Airbnb rental or to try out a ridesharing service.
Remember, every extra dollar you earn is a dollar that can keep gaining value in a retirement account for another 10, 20 or even 30 years.
10. Should You Postpone Retirement?
Lists of retirement tips this one might make you gun-shy about leaving the workforce in 2021. That’s OK. Given all the economic uncertainty facing the United States and the world, it could be wise to temporarily postpone your retirement plans.
“If you haven’t saved enough for retirement, the harsh reality is you might need to consider delaying it, even if it’s for a year or two,” says Henry. “If you’ve been laid off, try finding any work, even part-time work, that can help postpone the time when you start your Social
Security benefits and begin tapping into your retirement savings.”
Then you can save all the thinking you did today for 2022 or 2023, so you’ll be even more ready when the time comes.
Can I Retire Early?
Have you ever wanted to retire early after a rough week at work? We’ve been there.
When you spend 40-plus hours a week at a J-O-B, it’s easy to feel your life will never be yours. But you don’t have to wait until you reach 65 to reclaim your days.
So, can you retire early? With a little hard work and sacrifice, your dream of retiring to the beach could be within your reach. Start now and, before you know it, you could be sitting by the shore!
Can I Retire Early? Three Early Retirement Options
These days, retirement can take on a variety of shapes and forms. For some, their long-awaited life of leisure kicks in clockwork at 65, while others see retirement as a chance to abandon the corporate treadmill for a purpose-driven pursuit.
Let’s take a look at three different ways early retirement could work for you.
Option 1: Semi-Retire at Age 55
If you work hard and planright, you can have the freedom to do work you really love without feeling the financial pinch! Think of it as semi-retirement—a chance to retire early and live life on your terms. Here’s what that might look :
- You work part time at a bookstore, surrounded by the smell of fresh ink every day.
- You open that coffee shop you always wanted but never had time to put into action.
- You take a job at your favorite nonprofit, even though it means less pay, because you’re passionate about its mission.
The goal is to earn enough to cover living expenses without dipping into your retirement fund. That way you can continue to build wealth and avoid early withdrawal penalties.
Be confident about your retirement. Find an investing pro in your area today.
Let’s look at what it would take to shift gears, ditch the grind, and follow your passion 10 years early.
We chose $1 million because it’s a nice and shiny milestone to set your sights on. But get this: That cool million could grow to more than $2.5 million by the time you hit 65 if you keep your hands off your nest egg until then. And that’s if you don’t add a penny more to your retirement fund after age 55. Imagine the growth you’d see if you keep on investing!
Option 2: Retire Fully at Age 60
You work hard for your money and love the idea of getting to enjoy your retirement savings while you still have energy to chase your big life dreams. So, what would it take for you to step the workforce and into the good life at age 60?
Since you’ll be dipping into your retirement fund five years early, we’ve upped the saving ante to $2 million. In this scenario, you have five extra years to save for retirement at full speed. So it doesn’t take that much more a month to go from $1 million to $2 million.
Option 3: Build a Bridge Account
But what if you’re just tired of the grind and want to get the workforce as soon as possible? Maybe you’ve set a goal of calling it quits once you turn age 55. Before you quit your job for good, keep in mind that money withdrawn from your retirement accounts prior to age 59 1/2 could get hit with a 10% tax penalty. And that’s on top of any income taxes that might already be deducted.
So if you want to retire fully when you turn age 55, you’ve got a four-and-a-half year bridge period to think about—that’s the amount of time between when you want to retire and when you can withdraw money from your retirement accounts without penalty!
You can solve that problem by saving enough money outside of your retirement accounts to “bridge the gap” between whatever age you want to retire and age 59 1/2. That’s why we call it a bridge account!
We recommend investing in good growth stock mutual funds within a taxable investment account ( a brokerage account) to cover those bridge years.
While taxable investment accounts don’t offer any of the tax benefits of a 401(k) or a Roth IRA, they let you withdraw your money anytime and for any reason without having to pay any taxes or penalties to Uncle Sam.
But be warned, you’ll probably still have to pay capital gains taxes on the money you earn in a taxable account.
If you’re considering early withdrawals or opening up a bridge account to help you retire early, talk to your investing professional to see how taxes and penalties apply to you. A pro can also show you how dipping into your retirement accounts sooner than planned could affect your overall growth potential.
Is Early Retirement Worth It?
Most folks would agree retiring early brings a lot of perks. Who wouldn’t love a little more rest and relaxation in their lives?
But before you order party favors for your big celebration, there’s one last consideration to take into account—and it could be a big one. How much money are you giving up by taking your foot off the gas a few years early?
Let’s go back to our full-retirement example above and assume you invest $575 a month every year starting at age 25. Here are two ways retirement could play out for you:
- Retire fully at age 60, and you could be sitting on a $2 million nest egg.
- Keep working—and investing—for another five years, and you could retire with more than $3 million at age 65!
Is it worth more than $1 million to retire early? That’s a question only you can answer. But if you plan right, that choice is yours to make. Isn’t that what retirement should be about—financial security that gives you options?
If you love your job and want to continue working another 10, 15 or 20 years, do it because you want to, not because you have to. If you have bigger plans for the second part of your life, you can pursue them and feel financially secure to make that big move.
How to Retire Early
If these examples don’t work for your budget—or you can afford to save more—that’s okay. Remember, investing 15% of your household income for retirement is always a good rule of thumb. Just be sure you’re debt with three to six months of expenses in your emergency fund first.
Of course, that’s not the only step that will get you to your goal. Here’s how to boost your savings so you can retire early.
- Take advantage of tax-advantaged retirement plans as soon as you start your career. That gives compound growth more time to work its magic so you can put less effort into building a big nest egg.
- Invest in good growth stock mutual funds. Mutual funds allow you to invest in stocks without the risk that comes with single-stock investing. A good fund consistently outperforms others in the same category, covers multiple business sectors, and has an experienced manager at the helm.
- Pay off your mortgage. Let’s assume your mortgage takes up 25% of your budget. Knocking that sucker out slashes your household expenses by a quarter! Better yet, your home becomes a big asset you carry right into retirement.
- Build a bridge account. Set aside enough money in a taxable investment account to help you bridge the gap between the age you want to retire and when you’ll be able to withdraw money from your retirement accounts without penalty.
- Work with a pro. Everyone’s financial situation is different. The numbers we’ve crunched here might not work for you. An investing professional can help you determine how much you need to save when you plan to retire and the lifestyle you envision for yourself.
Work With an Investment Pro
Is early retirement in your future? Are you doing all you can to reach your retirement goals? Whether you’re a seasoned investor or just starting out, you don’t have to figure it all out on your own. Connect with a SmartVestor Pro today, and get on a path to early retirement that’s right for you.
How To Retire Early: 9 Steps That Could Help You In 2021
If you want to know how to retire early, you’re not alone.
And for some, the dream of early retirement isn’t just a dream. Plenty of people find ways to retire early with the help of a good strategy, hard work, and perseverance.
However, many people aren’t saving for early retirement – in fact, a whopping 29% of Americans don’t have any savings.
If you want to know how to retire early, this article can help. In it, we outline 9 steps to retire early that can help you achieve your goals, if you put the work in. We’ll also share some common benefits of early retirement to help inspire you.
But first, what is early retirement?
For decades, early retirement meant retiring at 60 instead of 65. And while this is technically true, the definition of early retirement has shifted.
Today, early retirement is no longer the moment you stop working forever. Now, it’s simply the moment you no longer need to work for money.
In other words, early retirement is another way of saying you’re financially free.
Some people achieve early retirement in their 30s and 40s. However, most of these people also continue to work in some way, often on a passion project or something they simply love doing.
Here’s the distinction: These people work purely because they want to, not because they have to.
Keep in mind that working can provide us with purpose, meaning, and fulfillment. Plus, some studies suggest that people who retire early and don’t work at all may die sooner than people who keep working.
So, for many, the goal isn’t to stop working entirely. Instead, it’s to be free – free to choose. To do the work you want to do, when you want to do it.
Sounds good, right? It gets better.
9 Benefits of Early Retirement
Retiring early isn’t easy. It can take years of consistent hard work, focus, and dedication. So, it’s vital that you keep your eye on the prize and stay motivated.
Here are 9 benefits to keep in mind when planning for early retirement.
- Dis your job, colleagues, or boss? You’ll never have to work a job you hate again.
- Want to travel the world? You won’t be restricted to just two weeks of vacation a year.
- Always wanted to start a business or new career? You’ll be able to!
- Wish you had more time with friends and family? You’ll have all the time you want.
- Want to spend more time on hobbies and interests? You’ll have plenty of opportunities.
- Ever wanted to learn a new skill, instrument, or language? You can spend more time reading and learning.
- Wish you could get away from the hustle and bustle? Weekdays in most cities are relatively quiet and calm because most people are at work.
- Wish you didn’t have to spend all day sitting at a desk? You’ll be able to prioritize your health and spend more time outdoors.
- Conscious that you only have one life? You’ll be free to spend the rest of your life on the things you value most.
How to Retire Early: Planning for Early Retirement in 2020
If you’re wondering how to retire early, there’s a lot to think about. Here are 9 steps to retire early that can help you to work out your strategy.
Step #1. Determine the Lifestyle You Want in Retirement
Before you can start planning for early retirement, you need a goal to aim for. So, take the time to determine the type of lifestyle you want when you retire early.
Once you’ve defined the type of lifestyle you want, you’ll be able to determine how much money you’ll need to retire early.
Here are some questions to help:
- Where do you want to live? Do you want to relocate to be closer to your family? Would you consider living somewhere less expensive?
- Do you want to travel? If so, how often and where would you to go?
- What will your daily routine look ? What costs are associated with it? For example, gym fees or travel costs.
- Will you still work in some way to create additional income? Perhaps you’d to start a small business or work part-time in a career you enjoy.
- What hobbies and interests do you want to pursue? For example, owning a sailboat costs a lot more than walking in nature.
Step #2. Create a Mock Retirement Budget
Once you’re clear on the lifestyle you want when you retire early, you need to define how much it will cost.
So, grab a pen and paper (or a spreadsheet if you prefer) and work out a mock monthly budget. Make sure to take into account:
- Home and car repairs
Step #3. Evaluate Your Current Financial Situation
When planning for retirement, the next step is to work out how much money you need. To do this, evaluate your current financial situation. Here are some questions to help:
- What is your current household income?
- How much money do you spend on expenses each month?
- How much money are you saving and investing each month?
(If you’re not saving or investing yet, don’t worry – it’s never too late to get started!)
Once you know the answer to these questions, it’s time to do some math.
Step #4. Work Out Your Retirement Number
Now, take your numbers and work out how much you need to save each year to retire early.
You can use a free retirement calculator to help, such as:
Some tools are more comprehensive than others. If you’ve been saving for early retirement already, use a tool that allows you to input specific details about your savings and investments.
Step #5. Cut Your Expenses
Once you know how much you need to save each year to retire early, you’ll ly need to cut your expenses.
Now, you’ll be able to save the most money where you spend the most money. So, before you look to save money on your morning coffee, try to cut back on your biggest expenses first.
According to the U.S. Bureau of Labor Statistics, the average American family spends over 70% of their income on housing, transportation, and food.
Here are some ways to reduce – or even make money on – your housing, transport, and food expenses:
- Downsize to a smaller property.
- Move to a cheaper area – try to save money on housing and commuting costs.
- Buy or rent a 2-4 bedroom property and rent out the extra rooms to offset, cover, or make money on your housing. (Make sure to check local laws.)
- Buy used cars in cash, instead of purchasing new vehicles on credit. Not only will you save money on the purchase, you’ll also avoid monthly payments and interest.
- Eat out less and make the majority of your food at home.
- Buy food in bulk.
Step #6. Pay Off Your Debt
Debt is one of the most significant barriers to early retirement. So, try to get debt as soon as you can. There are two main methods of paying off debt.
1. The Debt Snowball Method
Here’s how the debt snowball method works: Make minimum payments on all debt and focus on paying off your smallest debt first, regardless of the interest rates.
This method makes it easier to achieve quick wins and feel you’re making headway with your debts.
Personal finance expert Dave Ramsey wrote, “When you clear that first bill and move on to the next, you’ll see that you are in charge of your money. And that’s so motivating!”
2. The Debt Avalanche Method
Here’s how the debt avalanche method works: Make minimum payments on all debt and focus on paying off the debt with the highest interest rate.
This method has a significant financial advantage, as it reduces the amount you’ll pay overall.
Step #7. Earn More Money
If you want to retire early, you need to put money aside. To do this effectively, you may need to increase your income. Let’s take a closer look at two ways to do this.
1. Start a Side Hustle
Create new sources of income with a side hustle by starting an online business or joining the gig economy.
You could mow lawns, drive Uber, or start a dropshipping business. Whatever you do, having a side hustle is an excellent way to make more money to save for early retirement.
2. Optimize Your Day Job
Consider negotiating a raise and max out your employee benefits. You could also ask to work from home, so you have more control over your time to work a side hustle.
Step #8. Invest Money
Saving money for retirement is a good place to start, but most savings accounts have low interest rates. There’s little to no risk of losing your savings, but you also won’t earn income from your money.
Many people manage to retire early because of their investment strategies.
Okay, but what exactly is investing? Investing is the act of committing money to an endeavor with the expectation of making additional income from that money.
There are many different types of investing, and some of them are riskier than others. Still, the more money you can put aside, the earlier you’ll be able to retire.
Step #9. Track Your Progress and Hone Your Strategy
Planning for early retirement isn’t a set-it-and-forget-it experience. A lot can change, and you’ll need to continually track your progress and hone your early retirement strategies.
To stay on top of your finances, use a budgeting app, such as:
- You Need a Budget
- Personal Capital (featured below)
You may also need to tweak your early retirement plan.
To retire sooner, you could decide to lower your retirement lifestyle budget. In this case, you may not have as much money in retirement, but you could retire earlier.
On the other hand, you could decide to retire later than you had hoped. Although, you’ll have to work longer, you’ll have more money when you retire early.
Working out how to retire early can be challenging and overwhelming. It is important to create an early retirement strategy and take it one step at a time.
In summary, here are 9 steps to retire early that can help guide your efforts.
- Determine the lifestyle you want when you retire early.
- Create a mock retirement budget to plan your expenses.
- Evaluate your current financial situation.
- Work out how much money you need to save and/or invest to retire early.
- Cut your costs and find ways to save money.
- Pay down debt using either the snowball or avalanche method.
- Earn more money with a side hustle or by optimizing your current job.
- Invest funds to generate income from your money.
- Track your progress and hone your strategy as you move closer to your goal.
Finally, remember that money isn’t the goal – time and freedom are. Money is simply a tool that allows you to create more time and freedom in your life.
Want to Learn More?
Planning To Retire In 2021? Do These 7 Things Now
A wonderful retirement is the goal of many people, and you want it to come off without any major snags. But retirement plans always face challenges, whether it’s the volatility of the markets, the affordability of healthcare or even risks posed by COVID-19. Plus, you’re ly to face decades on a fixed income, and won’t have quite the financial flexibility you had before.
“Something that will surprise upcoming retirees is how long retirement actually is,” says Craig Cecilio, CEO and founder of DiversyFund, a real estate investing platform based in the San Diego area. He notes that retirement has been lasting longer over time as people live longer.
That’s why it’s vital to be fully prepared before you retire, and even make some room in your plans for the unexpected. Here are seven things to do now to ensure your golden years really are golden.
A good retirement starts with a good retirement plan, and before you leave the safety of a steady salary or income, you want to make sure your plan is as rock solid as you can make it.
“If you haven’t already, the first thing anyone needs to do before retiring is to devise a retirement plan that is tailored to their goals and factors in things cost of living, medical expenses, and Social Security,” Cecilio says. He also recommends paying off your debt before retirement to give you more financial flexibility.
And if you have a plan in place already, make sure you review it so that it’s up to date with the latest figures and estimates.
“You must revisit your retirement income plan to make sure your retirement income is enough to exceed expenses so that you do not risk having to unretire or, worse, run money,” says Beau Henderson, RICP, CLTC, founder of RichLife Advisors in Gainesville, Georgia.
Retirement planning is a tall task for many individuals, especially given the complexities around what you’ll earn with Social Security, the costs of Medicare and potential investment returns.
“Have a specialist help you look at your situation,” says Sharon Duncan, CFP with Selah Financial Services in Houston. “You’re ly to be retired 20, 30, or more years. Inflation will make your cost of living go up, but your retirement income will probably not go up as fast.”
A financial adviser, particularly a fee-only fiduciary adviser, can help you avoid common mistakes, such as having the wrong allocations early in your retirement or not enough income.
“We can run retirement cash flow reports that will analyze the current income needs of the client and their available assets, and it projects forward 20-30 years with some reasonable growth assumptions for the investments,” says Ben Barzideh, ChFC, wealth advisor at Piershale Financial Group in Barrington, Illinois. “We can add a cost of living increase each year to their income and see how that would affect the long-term projections.”
You’ll want to be sure that your financial plan is not too conservative and allows you to grow your money some over that longer retirement period. Otherwise, you may not have enough.
2. Consider how COVID-19 will affect your plans
The emergence of COVID-19 may throw your retirement plans into disarray as well, both financially and otherwise. The value of your assets may have taken a hit, or it may be disrupting your plans to travel or relocate to another state or country. It might also cause unexpected issues with estate planning or caring for a loved one who is ill.
So with coronavirus concerns ly remaining a significant issue for at least the next few years, you’ll want to assess how it may disrupt your vision of retirement, which may not be always negative.
“Those who plan to retire this year are faced with answering some important questions,” Cecilio says. “Is now the right time to retire? How will the pandemic impact my current investments?” He suggests asking an adviser to weigh your options and see if retiring still makes sense.
“COVID and working from home have been a good trial run for many people considering retirement,” says Duncan. “If you found yourself home more during COVID, think about what would be different if you retired now.”
She says that the pandemic has actually helped people realize they don’t want to retire, but instead work differently, while others have realized they want to retire sooner. It’s also challenged people to face their fear of spending all day, every day with their spouse, she says.
3. Protect your assets from the market
While it would be nice to live off the earnings of investments and not have to dip into principal, that’s not ly to be an option for most retirees. So it’s important to make sure any income that you’ll need in the near future (that is, at least over the next year) is protected from the market. You don’t want to rely on the market to be up (so you can sell stock) to fund your expenses.
For example, if you have Social Security and other retirement income of $30,000 a year, but you need $35,000 in income, you want to set aside $5,000 from investment accounts, which are more volatile than bank accounts. You can put this money in a high-yield online savings account or dump some of it into a short-term CD so that it may earn interest until you need to use it.
4. Plan healthcare carefully
“What might surprise someone retiring this year is how much health insurance costs these days,” says Barzideh. He says many people put off retirement until they’re old enough to get Medicare, unless they can find a cheaper alternative before then.
So if you’re planning on retiring, make sure you have an affordable healthcare plan. But it’s not as easy to know what your options are and set up the plan as it was when you were working.
“If you’re used to your company providing a few choices during open enrollment and then you’re done, you’ll find that health insurance requires more leg work during retirement,” Duncan says. “It’s not an impossible task, it’s just frustrating and time consuming.”
Here again a good financial adviser may be able to help you find quality, affordable options and compare the costs and the effects on your overall financial plan.
5. Shift your perspective from saving to spending
You’ve gone your whole life working and saving, but now that you’re in retirement you’ve made it to the time you’ve been saving for. You’ll have to shift to a spending mentality.
“Up until retirement, we think spending what we have saved is ‘bad,’” says Duncan. “In retirement, it’s just the opposite. It’s actually OK to spend, and not save, during retirement. Although this seems simple enough, it is a hard emotional change for many people because we feel we’re breaking the rules.”
Duncan says the feeling usually goes away after a few months of living in retirement.
For others who have been trained in saving their whole lives, it might be useful to set up a minimum spending budget, at least at first. With this budget, they can purposely spend with an easier conscience and still know that they have money left in reserve if they need it.
6. Re-establish your purpose
Having a successful retirement is not all about getting the financial details right, though those details do make it all a lot easier. It also revolves around finding new purpose away from the work world, perhaps with new friends, or in a different context altogether.
“We have had purpose during each phase of our life, and retirement is no different,” says Duncan. “Retirement offers a freedom and flexibility never before. You can even change your purpose whenever you want.”
Without purpose, you may find yourself dreading your free days and even feeling bored.
“Find a purpose and live retirement intentionally. It improves your health, vitality and happiness,” she says.
7. Plan to stay on top of finances in retirement
You might think that once you’re retired with a solid financial plan you’re ready to kick back, but it’s still important to manage your finances. Given that many live on a fixed income, it might be more important to stay on top of your finances and how changes to the law may affect them.
“Be proactive with your retirement and take it upon yourself to know what applies to you and your household in retirement,” says Henderson, pointing to potential changes in taxes, laws and Social Security.
“When you know the rules you can put yourself in the best position possible,” he says. “The problem is that most people are passive in their retirement planning and only address issues after the fact, and that is where the major mistakes are made.”
It’s another example of how a qualified fiduciary advisor could add value to your retirement. Or a low-cost robo-adviser could also help you avoid spending a lot of time managing your finances.
Setting up a retirement plan can be daunting for many people, particularly if they think they don’t have enough to retire or retire how they want. But you may have more than you think. And even if you don’t have enough, you may be able to adjust your plan to maximize your savings.
“Often we see with our clients that they are pleasantly surprised the first time we run the retirement projection for them and they realize they can retire and they’ll be fine,” Barzideh says.