Written by Ashley Lipman for Caring Transitions
Retirement planning is a life-long endeavor that allows you to enjoy the fruits of your labor. However, as you approach the big day, it's important to revisit your plans and ensure all your proverbial ducks are in a row.
Ideally, you'll start honing in on the financial aspects of retirement ten years before it's time to hang your hat and call it a day. Here are some of the key focal points to financially prepare for your retirement.
Pay Off Existing Debts
One of the overarching goals when planning for retirement is to pay off your existing debts. The big-ticket item is your mortgage. Having your mortgage paid off before you retire will dramatically improve your income-to-expense ratio. Furthermore, the equity of your home will be a powerful nest egg should you need access to emergency funds.
You'll also want to pay down consumer debt, such as any outstanding credit card debt or lines of credit. This exercise will put you in a financially comfortable situation and ensure your money is going toward your retirement goals rather than paying down interest.
Consider putting extra money aside in the years leading to your retirement to make extra payments on your mortgage. Additionally, implement a debt payment strategy to ensure you're retiring with a clean slate.
Clean Up Your Credit Report
When you're heading into retirement, you should clean up your credit report and focus on improving your credit score. Having a strong credit score is a form of financial security that cannot be understated after retirement. You'll need a good credit score if you require an emergency loan or if you're looking at new living arrangements when downsizing or seeking assistance.
While paying off your existing debts will contribute to a better credit score, you should also take the time to understand negative items on the report. If there are any items that could be disputed, consider reaching out to have them removed.
Contribute to Savings
While many retirement experts push the idea of compound interest over time, it's not too late to pad your retirement savings. If your larger retirement account is in good shape, consider other savings opportunities while you have an income.
For example, you should consider building a short-term emergency fund. An emergency fund consists of accessible cash to pay for leaky roofs, car repairs, and other short-term necessities. Having an emergency fund ensures you aren't tapping into your credit card or a retirement fund for routine maintenance and issues. Set a goal of building three months' worth of income in an emergency savings fund over the next few years.
Calculate Your Income and Expenses
As you get closer to retirement, you should spot check your future income versus your current expenses. Consider what you currently spend on necessities— utilities, for example. These baseline items likely won't change when you retire. Calculate your extra expenses as well, such as restaurants and entertainment.
Then, calculate your income after retirement and compare the numbers. You may need to make cuts to your current expenses to suit your new budget. Alternatively, you may need to save more to accomplish those bucket list items, like post-retirement travel. Give yourself ample time to adjust and improve your path forward.
Create a Health Plan
Unfortunately, healthcare needs often increase as we age. When you retire, you may leave both your income and private insurance behind. Consider what you need for coverage and how you'll access it. Look into Medicare and determine when your initial enrolment period takes place so that you can plan ahead.
With these key considerations, you can create a strategic retirement plan that allows you to enjoy your golden years in health and happiness. Give yourself time to pivot and adapt to the ever-changing world around you, and put protective financial measures in place.