Are you planning to retire within the next ten years or so? Financial security in retirement doesn’t just happen; it takes commitment, planning, and money. Here are some statistics to see how you compare with other people on the verge of retirement.
The average American couple had $255,200 in retirement accounts in 2019, which is an increase of 5% from 2016.
The average retirement account balance in 2019 was $65,000, a 2% increase over 2016. The average 401(k) balance in the 3rd quarter of 2020 was $109,000, a 4% increase over the 3rd quarter of 2019.
Fifty-one percent of American couples had at least one account for retirement in 2019, a 3% drop from 2016. Fifty-eight percent of Generation Xers, ages 45 To 54, have retirement accounts. Fifty-five percent of the Baby Boomers, ages 55 to 64, have retirement accounts.
Twenty-six percent of Latino families, 35% of Black families, and 57% of White families have retirement accounts. The average age of retirement in the U.S. is 66 years old. However, 74% of Americans say they plan to keep working after retirement.
Within the first two months of the coronavirus pandemic, 30% of Americans reported withdrawing money from their retirement accounts. The average withdrawal was $6,757. Forty-seven percent of American’s with savings account have either lowered or stopped their retirement savings contributions due to the Coronavirus crisis.
>Ten percent of Americans who lost their jobs or were furloughed due to the pandemic are now expecting to retire sooner. Four out of five Americans lack the basics of retirement planning to be financially secure.
The average retired couple exiting the workforce in 2020 needs an estimated $295,000, after taxes, to pay for health care, not including long-term care.
Whether you fall within these statistics or not, here are some crucial tips on what you need to plan for retirement.
Put together an estate plan
If you have an estate plan, make sure it is up to date. If you do not have one, see an attorney to put one in place. An estate plan is a process of anticipating and arranging for management and disposal of your estate after your death or if you become incapacitated.
The ultimate goal of estate planning is determined by specific goals set forth by the estate owner and may be as simple or complex as the owner’s wishes and needs stipulate. Guardians are often designated for minor children and beneficiaries who may be disabled or incapacitated.
Wills are a standard tool used in estate planning and usually the easiest device for planning an estate’s distribution. It must be created and executed according to the laws of the jurisdiction in which it is created. A trust can be used as a tool in estate planning to direct the distribution of the assets when the person who created the trust passes away. Trusts can be used to distribute funds for the benefit of minor children or physically or mentally disabled children.
A spendthrift trust is used to prevent wasteful spending on the part of an irresponsible child or a trust for special needs for the disabled child. Trusts provide a high degree of control over the management and disposition of the assets. Certain types of provisions can provide for the management of wealth for several generations past the creator of the trust. Typically, this is referred to as dynasty planning. These provisions allow for the protection of the wealth for several generations after the creator’s death.
An estate plan could include the creation of advance directives, which are documents that will outline what will happen to a person’s estate if they become legally incapacitated. Things such as personal care, healthcare proxy, durable power of attorney, and a living will may be included in the estate plan. Estate planning attorneys advise clients to create a living will to cover final arrangements such as a burial services plan and whether the subject is buried or cremated.
Make Sure You Are Financially Prepared
Envision the kind of retirement you want. Will you work part-time, volunteer, or travel? Then develop a realistic picture of the resources you may need and determine if your current ones are sufficient to support your goal. If you find a gap, think about adding the assets you need or adjusting your vision to match your resources. Analyze your current expenses to see if there are discretionary items that can be reduced or eliminated.
A well-balanced portfolio may help you weather downturns. It may eventually generate the necessary income to cover expenses for the kind of retirement you want that could last for decades.
Try to anticipate the expenses you may have later in life. Certain expenses, such as clothing or commuting costs, may decline. What you spend now will determine how you live during your retirement years. If you plan to travel extensively during your retirement, your projected costs will probably be higher than they are now.
Consider Future Medical Expenses
Do you understand the basics of Medicare health insurance? Do you have any idea how much your Medicare Part B premiums might be? Part B covers services from doctors and other health care providers such as outpatient care, home health care, DME (durable medical equipment), and most preventive services.
Medicare starts are age 65, and Medicare Part B premiums can be hefty for higher-income individuals. Medicare Part D covers the cost of prescription drugs.
It is a good idea to understand how it all works before the time comes. If you retire at the age of 65 or older, Medicare will cover most routine healthcare costs, but you may want to purchase supplemental coverage to help pay for non-routine expenses, which will likely arise as you get older.
Also, Medicare does not cover long-term care, such as nursing homes or convalescent homes. To secure your retirement nest egg, consider purchasing long-term care insurance to help with expenses such as durable medical equipment (DME) or home health aides. If you purchase coverage now, the premiums will be lower than if you wait a few years. Also, it is less likely that insurers will reject you.
If you currently have a health savings account, put it at the maximum contribution. The money has tax advantages, but distributions may be subject to income tax or penalties, or both, if not used for medical expenses that qualify, such as periodontal care or other dental work. The money you don’t spend can accumulate tax-free until you need it during your retirement.
Decide Where You Will Live
Deciding where to live during retirement is an exciting decision to make. Have you traveled to some exciting spot that you have always wanted to go back to? Have you dreamed of living near the ocean? Or are the wide-open spaces of ranch living appealing to you? Before you decide, there are other things you need to consider.
- Think about the cost of living in the area you are considering. Will your income be adequate for the lifestyle you want?
- Consider the quality of life in the area and how you would like to live.
- Evaluate the taxes in the state or city.
- Climate evaluation — is it sunny and warm all year, or does it have four seasons?
- Do you plan on traveling quite a bit during retirement? Make sure you have enough income to live the way you want and still be able to travel.
- Begin with a trial run. Plan a very short vacation to a few spots, if you are undecided, and determine which places will best suit your needs.
Will you be purchasing a new home, townhouse, or condo? If so, ensure that at least one of the bedrooms can accommodate adjustable beds in the event one is ever needed. Do you envision luxury living? If so, if you find a home in the area you want, but it is not quite up to your standards, consider hiring a luxury home remodeling service to make your retirement home everything you desire.
If you have a large family and expect to have visitors regularly, make sure you purchase a home large enough to accommodate them. If you have grandchildren and are in a warm climate, consider a property with a pool. A beautiful landscape design can make entertaining family and friends a wonderful experience that will provide memories for your loved ones for years to come.
Mentally Prepare for your Retirement
Retirement can be the best time of your life if you plan appropriately. You will now have enough time to do all the things you couldn’t find time to do while working.
Have you always wanted to try something new, like wine making? Or how about aging whiskey at home? Do you want to rekindle old hobbies that you needed to put aside during your working years? Now is the time to plan for when you will pick up these hobbies again. Here are some tips:
Start Preparing in Advance
A lot of people prepare for retirement financially without thinking of the emotional toll it can have. Each life change, negative or positive, comes with emotional uneasiness. Preparing for a significant life change cannot be done within a day, week, or month. You need to start preparing yourself mentally one to five years before you retire.
Visualize Your Life in Retirement
Many people are so focused on retirement’s financial aspect, they do not think about what they will do with their time. Because they are not mentally prepared for retirement, they can fall into depression, loneliness, waste their time with unfulfilling activities, or fill their time with things that keep them from fulfilling their dreams. Visualize the things you have always dreamed about doing with your spouse — the possibilities are endless.
Communicate with Your Spouse and Family About Retirement Plans
The biggest error couples make is not sharing what they expect from retirement. Many couples assume they have the same vision without ever talking about it. This leads to disappointment, friction, and conflicts, which can cause a breakup as you no longer are on the same page.
It is vital to discuss hopes and dreams and retirement plans with each other. Or perhaps your partner does not want to retire at the same time because he or she loves their job. Do you want to move closer to your grandchildren? But your spouse does not? Keep each other in the loop about your dreams and desires for retirement, so you can plan together.
Try Out Retirement Ahead of Time
Try to ease into retirement slowly by a reduction in working hours or take a leave of absence months or years before you actually retire to try it out. Some conclude that retirement is not what they expected it to be. Trying it out beforehand can give you a realistic view of what it will be like. It enables you to tackle problems ahead of time to make you more prepared for what is coming to make the transition successful.
Be Aware of the Retirement Transition Process
Retirement is a mental process. Be mindful of the process and the stages of retirement to make you more emotionally prepared. Going from 40+ hours a week to having all the time and freedom in the world is a transition that you don’t adjust to overnight. How long the adjustment takes is different for everyone.
Discovering Your New Identity
What you do is more important or gives you more status than who you are as a person — at least in western society. Working in the same field for 30+ years gives you an identity. Your job has undoubtedly become a big part of who you are, and you may feel a sense of loss when you retire.
Discover Your New Purpose in Life
Having a job gives you a purpose and direction in life. You need a paycheck to pay the bills and save money for retirement. Achieving goals and success at work provides fulfillment in life. Doing a job well gives you satisfaction and a feeling of accomplishment. When you retire, this goes away, and you need to discover a new purpose in life to make it meaningful.
Continuing to find fulfillment and satisfaction in retirement is essential to living a happy retired life. That is why it is necessary to think about your new purpose in life prior to retirement and have a plan to make the transition easier.
