When you’re in the home stretch of your career and looking forward to the day you finally call it quits, many things will be going through your mind: Will I have the income I need in retirement? How am I going to spend the time I used to spend on my 9-to-5 job? What “bucket list” activities do I want to enjoy while I’m still healthy?
Since retirement is such an important milestone, it’s essential to consider all the financial and lifestyle aspects of this decision before deciding when to retire. While not exhaustive, I’ve put together the top three decisions you need to make before you leave your employer and enter retirement. If you can confidently answer these questions, you’ll be on your way to a comfortable retirement.
1. How Much Longer Will You Work?
There are a number of factors to consider when deciding how much longer you should work. For instance, if your income is at the highest point of your career, retiring sooner could lower your Social Security benefit. Will retiring sooner be worth the decline in Social Security benefits? What do your benefits look like if you were to retire now compared to some point in the future?
It’s also important to consider how retiring now, as opposed to three years from now, would affect other sources of income in retirement like a pension, a deferred compensation plan, or your 401(k). Running the numbers on these various scenarios is one part of the financial plans I create for clients. You can see a sample financial plan here.
Lastly, there are important lifestyle considerations: What will you be doing with your time once you retire? What have you been itching to do but haven’t had the time because of work?
2. How Much Income Will You Need?
Determining where (and how) you will generate your retirement income is one of the most important exercises you can do before you retire. What sources of income are available to you? Perhaps you have investments in multiple accounts like an IRA, a 401(k), and a joint account with your spouse. How much income will those investments be able to provide you?
A number of our clients in the defense industry have unique income sources, like a pension or participation in a deferred compensation plan. Those will also be able to create an income for you but require additional planning as the options are different from a traditional investment.
Do you have the option to receive a lump sum from your pension? Do you need to withdraw your deferred compensation plan in 10 or 15 years? What are the tax implications of each of those decisions? How and when should you withdraw those funds?
Last but certainly not least, you also need to consider your expenses in retirement, and compare that to your income sources. Do they match up, or do adjustments need to be made?
3. How Will You Get Your Health Insurance?
One of the biggest expenses in retirement is healthcare costs. According to Fidelity, an average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover healthcare expenses in retirement. (1) With costs that high, it’s imperative you have a plan to secure your health insurance needs.
If you retire before age 65, you won’t yet be eligible for Medicare, and you’ll need to determine how to get coverage for yourself. Will you be eligible to enroll in your spouse’s plan if they are still working? Or will you need to purchase your own policy, perhaps through the individual marketplace?
If you’re over 65 and have enough work credits, you’ll be eligible for Medicare. Yet it’s not simply as easy as enrolling in Medicare. There are a number of additional choices you need to consider with Medicare. Will you choose Original Medicare, Medicare Advantage, or Medigap? What coverage needs are most appropriate for you and your family?
Your Retirement Action Plan
If you’d like to determine the best way to retire on your terms, I’d be happy to help. You can schedule a no-obligation introductory meeting by calling me at (619) 681-1911, emailing paul@fsiwealth.net, or scheduling a time online.
About Paul
Paul Neves is president and wealth manager at FSI Wealth Management, a leading independent wealth management firm based in San Diego, California. Paul is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Financial Consultant®. Working with clients in the financial industry since 1989, Paul has dedicated his life to seeing his clients and their families reach their goals and fulfill the financial plans they have created for their life. He believes that trust and respect are key to building strong, long-lasting relationships with his clients. Paul is known for helping families take the mystery out of preparing for today and tomorrow.
Paul graduated from San Diego State University in 1989 with a bachelor’s degree in business administration, concentrating in financial planning and services. He is currently a resident of Point Loma, California, where he spends his free time with his family and friends either boating, cooking, wine tasting, or traveling. To learn more about Paul, connect with him on LinkedIn.
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(1) https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs