Are you looking forward to your retirement? You are not alone. A lot of people dream of retiring to enjoy the freedom of free days. However, when it comes to retirement, the failure to plan for it can have overwhelming consequences. According to Ameriprise, more than half of workers over age 55 haven’t created any plan to pay themselves during retirement, and about two-thirds don’t know the investment plan to do. Take a look at the 3 essential things to do before your retirement.
Get Out of Debt
Paying off your debt before retirement is a great tactic to reduce overall expenses afterward. When you retire, you’ll likely depend on a fixed income, which may come from either your retirement funds, pension, Social Security, or a combination of two or all. When you are on a fixed income, you don’t want debt consuming most of the money you are supposed to live on.
It is especially important to get rid of high-interest debt such as credit cards, student loans, auto, or mortgage, in the years that lead to your retirement. However, the decision to pay your mortgage is a bit more difficult. While it is easier to make a financial decision during your retirement transition when you are mortgage-free, paying off your mortgage early might affect your retirement savings, making you miss out on crucial tax-deferred gains.
One of the things you may want to consider is how high/low your mortgage rate is. In the case you get your mortgage or refinanced when the rate is at record-low, paying off early might not make financial sense. Keeping your mortgage can help free up space for other important needs.
Consider Future Health Care Costs
Enrolling in an affordable and creditable health insurance plan during retirement should be one of your top priorities before you retire. Health-related costs can account for a huge part of your budget during retirement, even when you are enrolled in Medicare. According to the Kaiser Family Foundation, health-related costs account for 14 percent of household spending for Medicare beneficiaries in 2016.
Also, even with Medicare, the cost of healthcare in the United States is continually on the rise. From higher-cost new procedures to prescription drug coverage increases, the healthcare costs are expected to increase by 5.5 percent yearly for the next decade. This is according to the Centers for Medicare and Medicaid Services (CMS).
It is important to plan for these increases in healthcare costs. Especially as you age, you become more susceptible to frequent healthcare needs. Planning as best as you can for these medical costs can save you huge stress and money when you retire.
Decide When You’ll Start Claiming Social Security
For most seniors, Social Security covers a large portion of their retirement income. But while your Social Security benefits themselves are calculated based on what you earn during your career, the period you first file for your Social Security can make the number go up or remain the same. This is why it is important to develop a plan for claiming your Social Security rather than go in blind.
For instance, if you file for Social Security benefits at the retirement age, which is usually between 66 and 67, you will get the full monthly benefits you are entitled to. But if you file before the full retirement age, your benefits will reduce, whereas your benefits will get a rise if you delay filing for your Social Security past the full retirement age.
The Bottom Line
Retirement can be a fulfilling and exciting period of your life, provided you adequately provide for it. Whether you have taken steps to make your retirement more enjoyable or not, there are some of the things you can do before calling it quits on the work front.