Thinking About Retirement? Here are Five Tips to Help You Prepare

Retiring from your current working life can be an exciting and daunting time. You may be wondering what you’ll do with your newfound freedom or perhaps you already have firm plans in place. Either way, you should begin preparing for a secure retirement well before the day arrives. Your team at Highland is here to help you plan, with five essential recommendations to help you prepare for retirement.

Know Your Numbers

We encourage anyone who is thinking about retirement to develop a realistic budget for their expenses in retirement. Think about how your cost of living might differ from today — expenses might include more travel, remodeling the house, or other changes to your usual budget that must be considered. Next, inventory your current resources and potential sources of income in retirement, like retirement accounts, IRAs and 401(k)s, as well as Social Security income and pension. If there’s a gap between anticipated income and expenses, formulate a plan, whether someone needs to work a little longer, or perhaps there’s some give and take in your anticipated expenses in retirement.

Don’t Leave Money On The Table

Many employers offer retirement plans, such as 401(k)s; some of these will offer matches, so be sure to take advantage of this free money. Understand where you can save and get tax benefits. Employers may also offer Health Savings Accounts (HSAs), which allow for pretax savings to be used tax-free on medical expenses during retirement. For those closer to Social Security age, consider when to start taking it. You can receive Social Security as early as age 62, but your benefit increases fairly substantially if you delay taking it for several years. Keep in mind that the maximum age to begin receiving Social Security benefits is 70.

Patch Your Cash-Flow Leaks

After taking advantage of any of these “free” sources of income, consider paying down debt (particularly high-interest debt, such as credit card debt) before contributing to additional savings. Paying down that debt by the time you retire will help maximize your cash flow in retirement. Some people think, “If I pay down debt, I can’t save.” Consider that your savings is unlikely to keep up with 19% interest on credit card debt, so paying down debt is a guaranteed return on your savings. It is tremendously beneficial to enter retirement with those burdensome cash outflows eliminated.

Be Health Care Aware

Medical and long-term care can be huge expenses and risks in most people’s retirement plans. If someone is planning on retiring before they’re eligible for Medicare at age 65, it’s important to factor in the cost of individual health care plans, which tend to be more expensive and not cover as much as plans through an employer. If someone is retiring fairly early, at age 60 for example, it’s likely they’ll need an individual plan until they qualify for Medicare.

Become educated about Medicare as you approach age 65. There are different options and plans to evaluate. Prepare for the likelihood of needing long-term care at some point during life, whether through a long-term care policy or through self-insuring.

Live Life By Design

Often retirees underestimate the sense of identity and purpose that their work or career provides. Replacing that in retirement is important. We encourage people to consider: “What have you always wanted to try that you hadn’t had time for?” Perhaps you want to write a book, become an adjunct professor, get involved in your local community or in nonprofits you care about, spend more time with your grandchildren, be a mentor. Retirement is an adjustment, and if there’s a nonworking spouse at home, it’s a very big adjustment for them, too. Take time to ponder and discuss what an ideal life in retirement looks like.

Have more questions about planning for retirement? Reach out to your Highland team anytime.