It’s always a good idea to check in on the status of any plans or goals you may be working towards, and your retirement plan is certainly no exception. When you’re younger and retirement feels far off, you could get away with infrequent checks, but as you approach retirement, particularly once it’s as close as five years, you should begin to check regularly and frequently. When you do choose to conduct an audit, there are several key factors that will affect the longevity of your finances, for example:
- Consider when you’ll retire: We’re so lucky to live in a time when lifespans are longer than they have been at any time in the past, which means more time to do the things we want after retirement, more time with our loved ones. It also means, though, that our retirement savings have to last longer than ever. If you don’t have enough savings to retire at your chosen date, you may want to consider staying employed part time or even full time until you save enough.
- Decide when to start taking Social Security benefits: particularly if you retire before what the government considers “full retirement” age, you don’t have to take SSI right away, and delaying can increase your expected payment considerably. Be aware, also, that if your retirement plan includes income from a part time job that these funds may decrease the payment you receive from SSI
- Retirement income: When you retire, you should keep your funds in growth accounts for as long as possible, but you are going to need to make regular withdrawals so that you can live comfortably and budget easily. When determining how much income you can expect to have, a good rule of thumb is that you should draw down 4% of your savings each year – simply add up all your accounts and multiply the balance by .04 (or multiply by 4 and move the decimal in two places from the right), and that’s how much you can withdraw each year.
- Get your homestead in order: after you retire, you may stay in a home you own, or it may be more beneficial to sell or rent that property and move to a smaller home or get other living arrangements. It’s important to plan this before you retire especially because it can be one of your biggest payments after retirement.
- Once you’ve decided how much money you’ll have access to, examine your expected expenses and consider whether they will allow you to live the lifestyle you wish in retirement. If you’re still paying a mortgage, a lease, or other large regular expenditures, pre-retirement is the perfect time to settle those debts so that you’re not saddled with them when your regular income stops.
- Give it a test run: Now that you have a handle on your budget, try living on it for a year or two; you could accomplish this by simply diverting part of your income into other accounts where it will be less accessible and trying to live on just the retirement amount you’ve planned for. It may be difficult if you’re still paying off several bills that you don’t expect to have once you stop working, but you can account for that with careful planning.