3 to 5 Years Before Retirement

Retirement. A very big lifestyle change.

Work is only part of who you are as a person. When you retire, there will be a whole new world for you to shape, create and experience.
 
One to five years before retirement is a crucial time to clarify your retirement vision. It is the perfect time to consider some of the life-altering changes that will be confronting you upon retirement and to implement any financial changes necessary to secure your retirement future.

Your Checklist

Am I ready to retire?

  • Do I want to retire?
  • Will I move or stay where I am?
  • How do I want to spend my time in retirement?
  • Have I thought about the activities I enjoy and would find rewarding?
  • How will I handle not having to go to work?
  • How much will I miss the social contacts and friends at work?
  • Will my friends also be retired?
  • Am I psychologically ready to retire?
  • Should I consider semi-retirement or a second career?
  • What impact will my retirement have on my family?
  • What if I choose not to retire?
  • Can I afford to retire, or will I have to get a part-time job to make ends meet?

Where should I retire?

  • Have you decided where you want to live in retirement and why you want to live there?
  • Would you like the new climate year-round?
  • Can your family and friends visit easily?
  • Do you and your spouse agree on the new location?
  • If you were widowed, would you stay there?
  • Will you be able to make friends and pursue your interests and hobbies?
  • Are you close to stores and shopping?
  • Are there medical facilities adequate and close by?
  • Could you work if you wanted to?

How much income will you need in retirement?

  • A record of your expenses can help you decide how much income you will need.
  • Consider whether your lifestyle will change after you retire and how this will affect the amount of income you will need. How will you fund your retirement?
  • Update your net worth statement that lists assets and liabilities.

When will you be eligible for Social Security retirement benefits?

  • Contact the Social Security Administration at 1-800-772-1213, or see http://www.ssa.gov/ to learn about your benefits.
  • The age for full retirement benefits will increase in gradual steps until it reaches age 67.
  • This change started in 2003 and will affect people born in 1938 and later.
  • You can start receiving your Social Security benefits as early as age 62, but the amount you receive will be less than your full retirement benefit.
  • If you take early retirement, your benefits will be permanently reduced based on the number of months you will receive checks before you reach full retirement age.

Do you have other sources of retirement income?

If you participate in any employer sponsored retirement plans, make an appointment with the benefits department to learn about your options for receiving pension benefits. Also, contact the plan administrator of your current company and all previous employers to determine your benefits. If you have difficulty tracking down the information, check with the Pension Benefit Guaranty Corporation, which protects pension benefits in defined benefit retirement plans. If your options include:
  • A lump sum payment, consider rolling it over into an Individual Retirement Account (IRA) to defer taxation.
  • An IRA, you will need to begin to withdraw at least a minimum amount no later than April 1 of the calendar year after you reach age 70½.
  • A plan that allows withdrawals as early as age 59½ without a penalty, you may want to stay in the plan.

Do you have an estate plan?

  • Schedule a meeting with an attorney who has tax planning and estate planning experience.
  • Prepare a list of your assets and liabilities. Be prepared to discuss how long you expect to live and how much income you will need for the remaining years.
  • This is the time to discuss how you want to distribute your estate after your death.
  • If you are married, you and your spouse should estimate what his or her needs will be if you are the first to pass away.
  • Ask your attorney to explain various forms of trusts to you. Study them to determine if one of them fits your needs.
  • Prepare a will if you haven't already done so.

Are you eligible for Medicare?

  • Medicare eligibility begins at age 65 even if you start receiving Social Security benefits earlier.
  • If you are already receiving Social Security when you turn 65, you will automatically be enrolled in Medicare.
  • If you're not getting Social Security, you should sign up for Medicare as your 65th birthday approaches, even if you aren't ready to retire.
  • Medicare generally does not cover outpatient prescription drugs, routine physical examinations, eyeglasses, custodial care, dentures, routine foot care, hearing aids and orthopedic shoes.
  • You may want to purchase a Medigap policy to supplement the medical expenses that Medicare does not cover.
  • How would you fund long-term care?
  • For information on Medicare, phone 1-800-633-4227, or see http://medicare.gov/.

How would you fund long-term care?

  • Almost one half of all people age 65 and older will enter a nursing home at some time during their lives.
  • Long-term care insurance can help pay for the expense of a nursing home, home health care or assisted living.
  • Medicare generally does not pay for long-term care and Medicaid only pays if you meet specific income guidelines.
  • Investigate paying for long-term care expenses through long-term care insurance that's designed to cover expenses such as upgrading nursing home accommodations or financing your at-home care.
  • If you decide to purchase long-term care insurance, don’t forget to account for the premium payments in your retirement budget.
  • Consult an insurance agent for long-term care insurance coverage and costs.
  • Or, contact your state’s Department of Insurance's Senior Health Insurance Information Program for information and counseling.

Is your family aware of your retirement plans?

  • Prepare all the legal documents including will, living trust and Power of Attorney.
  • Share this information with your family.
  • Be sure everyone knows the location of important documents.

Financial Preparation

Check Your Income Sources

  • Social Security
    Contact the Social Security Administration at 1-800-772-1213 and request the Retirement Benefits booklet (publication No. 05--10035)
  • Company Retirement Plans
    Request a meeting with the Human Resources or Benefits Department to review the terms of your retirement plans. Many benefits are paid out in the form of an annuity—a fixed monthly payment for the rest of your life. For a defined benefit pension plan, the formula used to calculate the annuity typically includes your final salary, years of service and a fixed percentage rate. When you leave your job, your pension benefits generally stay in the company-sponsored plan, where they can be claimed at age 65. Some pension plans can be tapped even earlier. However, like Social Security, your benefit may be reduced because you will be receiving benefits over a longer period of time.

Prepare Financially

  • Prepare a detailed budget.
  • Remember, out-of-pocket expenses for health care will increase.
  • Entertainment expenses stay the same after retirement and are subject to inflation—be prepared to shell out almost as much in retirement as you did when you were working.
  • Eliminate debt—debt is an anchor around your neck. Pay off the most expensive debt first.
  • Reduce credit card balances and monthly payments.
  • Pay off your car loan and drive around for a few years with no car payments. Stick the savings into investments.
  • Pay off mortgages and home loans.
  • Set aside at least a year's worth of living expenses as a contingency fund.

Research insurance options

  • Long-term care insurance helps to cover what Medicare doesn't. This can include long-term nursing, and rehabilitative and day-care services at home, in a community center, or at a nursing home.
  • Medigap insurance—pays for some out-of-pocket medical expenses, such as deductibles and co-insurance. A few Medigap policies also pay for outpatient prescriptions.
  • Life insurance—the underlying question at every age is, "Will my death create significant financial hardships for the people I care about?" Life insurance can relieve financial hardships and provide financial support for your loved ones after your death. Seek a financial advisor for your insurance options.

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