These days, planning retirement is more complicated than ever and involves countless decisions.
“Retirement looks very different for people today than it did 50 years ago,” said financial planner Aaron Hatch. “People are living longer, and their families sometimes live across the country, or even across the globe.”
No matter how grand or modest your retirement plans are, you’ll want to make sure your finances, your significant other and your emotional state are ready for the transition. Here are five ways to test if your plans match your dreams.
1 TAKE YOUR RETIREMENT BUDGET FOR A TEST DRIVE
Before you stop working, you should determine the income you can live on. One of the best ways to know if you have adequately planned for retirement is to actually live on such a budget, said Ed Gjertsen II, chairman of the Financial Planning Association. Gjertsen recommends creating a retirement spending plan and trying to live on those amounts for a couple of months.
Calculate your Social Security benefits and take into account any pension income or retirement savings you expect to receive during retirement. See if that money will last for the entire year. If you find that you’ll be cutting it close each month or that you can’t live on that income, you have two choices: Lower your retirement standard of living, or plan on a part-time job.
2 ADJUST YOUR SPENDING
After your test drive, you may have to adjust your spending plan. “We can create a terrific financial plan — then life happens,” said Gjertsen. “What most don’t realize is that we are not being nickeled and dimed to our financial detriment, but fived and 10’d instead. Cellphones, Internet, cable and a myriad of other monthly expenses all create a drain on pocketbooks and portfolios.”
3 CHECK YOUR EMERGENCY FUND AND MEDICAL COVERAGE
Gjertsen said that the most challenging element for retirees is health care costs, because they are very difficult to fully and adequately plan for. To better figure out your financial plan for this, first understand what is covered by your Medicare parts A and B and Medigap policies. “This is a complicated area but is critical in making sure you carry proper health insurance,” Gjertsen said.
Even when you know your health coverage, you should have a plan for the unexpected. If your mortgage is paid off, one option is to get a home equity line of credit before retiring.
4 MAKE SURE YOUR SPOUSE IS ON BOARD
One of the major questions Gjertsen asks in preretirement discussions is whether both spouses are ready to retire. “The retiring spouse usually answers ‘yes’ emphatically — when in fact, I was asking the question of the other spouse,” Gjertsen said.
Retirement can be a difficult transition; for couples with just one person getting ready to retire soon, both the retiree and the nonretiring spouse have to make adjustments. “It’s difficult when one spouse wants to retire and we show that it may create financial challenges down the road,” said Gjertsen.
Couples should avoid the all-or-none kind of thinking that retirement can trigger. Instead, they should work toward a third solution that’s a compromise and acceptable to both individuals.