Important Things to Remember as You Get Closer to Retirement

Older couple in an old Thunderbird convertible

By Alison Wood, Contributing Writer

Retirement is a major change in anyone’s life, and it will be a smoother transition if you prepare before making the leap. This article looks at some of the key areas you will need to think about as you approach retirement. The earlier you can start considering these, the better. They will give you more opportunity to make any necessary changes, particularly financial ones, as early as possible.

IMPORTANT NOTE: The areas outlined are provided to give you a starting point for your retirement planning. They are not in any way to be viewed as financial advice, and you should seek professional financial advice where necessary before making any decisions.

Ask yourself some important questions

One of the first things to do as you plan for retirement is to ask yourself two important questions:

  1. What do you want to do in retirement?
  2. How much money will you need to do what you want to do?

Everyone will be different depending on their answers to number one. You might want to travel, downsize your home, spend time with your grandkids, devote yourself to a hobby, help others by volunteering, or even continue to work, albeit on a part-time basis — just to name a few desires.

Knowing what you want to do — and how much money this will require — will put you in a much better position to prepare for retirement.

Are you responsible for someone else?

Another key consideration is whether you’ll be responsible for any dependents. This might mean younger children whom you are still raising, young adults who need your support while they are going to college, disabled children (both younger and older), an ill spouse, or elderly parents who now rely on you for caregiving.

It’s important to figure into your financial picture any costs necessary in providing care to others, as well as your own immediate needs and wants.

Where do you want to live?

Once you know how much money you will need for retirement you will be able to judge what lump sums you will need and what ongoing pension requirements you will have. Some people decide prior to retirement that they want to downsize. This can be helpful in two ways. First, you won’t have the upkeep of a larger property, and second, you can often release a sizable lump sum from your home, which you can use for other things.

When possible, it’s best to retire with as little debt as you can, whether that’s credit card or personal loan debt, or a mortgage on your property. Therefore, in the years before retirement, consider clearing any unsecured debts and whether you should start paying down your mortgage.   

Check the coverage of your health insurance

If you have been getting healthcare insurance through a plan sponsored by your employer, it’s important to check your coverage options, and the costs involved after you retire. If you are thinking you are going to rely on Medicare, remember that you will not be eligible for this until your 65th birthday. It’s also important to know that your initial enrollment period for Medicare begins three months before your 65th birthday, and ends three months after that birthday. So you’ll want to mark your calendar and enroll as soon as you can.

Check your retirement accounts and earned income

If you have a 401(k) or an IRA, as you approach retirement you might want to become more risk-averse. While investment in stocks usually provides the best return on investment, it can be more of a risk as well, as the market is volatile. Only you will know what income you need during retirement and therefore, what risk you are willing to bear. A good financial advisor can help you decide what path is best for you and your goals.

Different types of retirement income also come with different tax implications, which can affect how much money you have for the things you really want to do. It’s also important to remember that if you are considering working part-time during retirement, that earned income can have an impact on your social security payments, depending on your age and how much you are making. So again, it’s wise to talk to a financial advisor for an expert’s opinion and insights.

This is also a good time to put your affairs in order if you haven’t done so already. While, of course, you want a long and happy retirement, no one really knows what is around the corner. Therefore, it’s important to make sure that your loved ones are taken care of and that you have a will and/or trust in place, and that all of your accounts reflect the correct beneficiaries. Talking to an estate attorney can help you make the right decisions and get everything into place, while you are still healthy and of sound mind.

Lower your expenses

Retirement sometimes means living on less income. One way to counter this is to consider all of your expenditures and minimize them as much as possible. You can do this even now — before retirement — in order to save more for then and to get accustomed to a different, more budget-conscious lifestyle. There are many ways to live more frugally. Check out our article on Living on Less as You Age for more in-depth tips.

Prepare emotionally

Retirement can be an exciting and freeing time, but it can also be a time of adjustment. If you have been used to working for decades, it can be a big shock to step outside of that daily framework. At first, you might wonder how to fill your days, and you may miss the validation of working life. Some people lose a sense of purpose and identity, as both were very connected to their work.

So as well as all of the practical and financial preparations for retirement, it’s also important to prepare emotionally. Think about how you want to spend your time moving forward. Are there hobbies you want to pursue, travels you want to take, or dreams you want to fulfill? If you have goals and something to pursue, that can make the transition from working life to retired life go much more smoothly.