Retirement is one of the biggest transitions you’ll ever make, and the decisions you make in the months and years leading up to it can shape the rest of your life. The good news is that a little planning goes a long way. Here are ten practical tips to help you feel confident and ready when the day finally comes.
1. Choose Medicare Coverage Carefully
Healthcare is often the biggest wildcard in retirement planning, and getting this piece right matters enormously. You become eligible for Medicare at age 65, and it’s important to understand your options before you sign up. You’ll need to choose Medicare coverage that fits your health needs and your budget, whether that means sticking with Original Medicare and adding a supplement plan, or going with Medicare Advantage. Missing your enrollment window can mean paying permanent penalties, so mark those deadlines on your calendar well in advance. If you’re still working at 65 and covered through an employer, make sure you understand exactly how that affects your Medicare enrollment timeline.
2. Get Clear on Your “Retirement Number”
Before anything else, you need to know how much money you actually need to retire comfortably. A common rule of thumb is that you’ll need about 80% of your pre-retirement income each year to maintain your lifestyle. Sit down with a financial advisor or use an online retirement calculator to get a realistic picture of your target savings. Once you know your number, everything else starts to fall into place.
3. Pay Down High-Interest Debt First
Carrying credit card debt or personal loans into retirement is a budget killer. Interest charges eat into fixed income fast, and the last thing you want is to be making minimum payments when you’re living on savings and Social Security. Prioritize knocking out high-interest debt before you retire. If you have a mortgage, decide whether paying it off early makes sense for your situation, though for many people, keeping a manageable mortgage payment is perfectly fine.
4. Maximize Your Retirement Accounts
If you’re within ten years of retirement, this is the time to contribute as much as possible to your 401(k), IRA, or other retirement accounts. People aged 50 and older can take advantage of catch-up contributions, which allow them to put in more than the standard annual limit. Every extra dollar you sock away now is working for you later, so take full advantage of any employer match and max out those accounts if you possibly can.
5. Think Through Your Social Security Strategy
One of the most important financial decisions you’ll make is when to start taking Social Security. You can claim as early as 62, but your monthly benefit will be permanently reduced. Wait until you’re at full retirement age, which is 66 or 67, depending on when you were born, and you get your full benefit. Hold out until 70, and your benefit increases even more. If you’re in good health and can afford to wait, delaying often pays off in a big way over the long haul.
6. Create a Realistic Retirement Budget
A lot of people assume their spending will automatically drop in retirement. Sometimes it does, but often it doesn’t, at least not right away. Travel, hobbies, home repairs, and helping adult children can all add up. Build a retirement budget that reflects how you actually want to live, not just what sounds comfortable on paper. Factor in healthcare costs, inflation, and the fact that you may spend more in the early, active years of retirement than you will later on. A realistic budget is far more useful than an optimistic one.
7. Understand Your Withdrawal Strategy
Having savings is one thing. Knowing how to withdraw them wisely is another. The order in which you pull from your accounts matters for tax purposes. Drawing from taxable accounts first, then tax-deferred accounts like a traditional IRA or 401(k), and finally Roth accounts last is a common approach. You’ll also want to understand required minimum distributions, which the IRS requires you to start taking from traditional retirement accounts at age 73. Getting the withdrawal strategy wrong can cost you thousands in unnecessary taxes over time.
8. Plan for Healthcare Before Medicare
If you plan to retire before age 65, you’ll have a gap between leaving your employer’s health insurance and qualifying for Medicare. That gap can be expensive. Options include COBRA coverage, which lets you stay on your employer’s plan for a limited time, marketplace plans through the Affordable Care Act, or coverage through a spouse’s employer. Whatever you choose, don’t underestimate healthcare costs during this window. They can be significant, and going uninsured even briefly is a risk that simply isn’t worth taking.
9. Think About Where You Want to Live
Retirement is a great time to reassess whether your current home still makes sense for you. Some people want to stay put and age in place, which may mean making modifications to the home to accommodate changing mobility needs down the road. Others want to downsize, move closer to family, or relocate to a state with a lower cost of living or more favorable tax treatment for retirees. Housing is likely your biggest expense, so thinking it through before you retire, rather than after, gives you more options and more time to plan the move thoughtfully.
10. Get Your Legal and Financial Documents in Order
This one doesn’t get talked about enough. Before you retire, make sure your estate planning documents are current and complete. That means a will, a durable power of attorney, a healthcare proxy, and, if appropriate, a trust. Review your beneficiary designations on all retirement accounts and life insurance policies, because those designations override whatever your will says. Make sure a trusted family member or advisor knows where your important documents are kept. Getting this in order isn’t morbid; it’s just responsible, and it gives you and your family real peace of mind.
One More Thing
Retirement planning can feel overwhelming, but you don’t have to figure it all out at once. Start with the areas where you feel least prepared and work from there. The most important step is simply getting started. A good financial planner who specializes in retirement can walk you through the details and help you build a plan that’s tailored to your specific situation. The earlier you start thinking through these ten areas, the more confident you’ll feel when retirement day actually arrives.
