12/23/2011 7:10 PM ET|
Can you retire before 2013?
You want to retire in the upcoming year but could use some guidance. Start with these 20 things to do and consider, from budgeting to insurance coverage.
Happy new year! Here come your resolutions:
● Drop 10 pounds.
● Stop watching reality TV.
●Retire before 2013 rolls around.
While the first two goals are not particularly daunting, the prospect of retiring within a year's time mandates careful thought and systematic, orchestrated decisions. If you're on the cusp of retirement but unsure of what that will require, here's a 20-point checklist to get you started:
1. Consolidate your accounts. Like many people, you may have a savings account here and certificates of deposit there. Consolidate them as much as you can to make keeping track easier. Web applications such as Mint.com can link to most of your banking and investment accounts so you see them in one place.
2. Estimate what your expenses will be in retirement. You should have done this already, but double-check. Add up your current monthly expenses. Take into account what will change after you retire. Be as specific as possible. Here's an abbreviated sample worksheet. Once you've reviewed it, plug in your own monthly numbers:
- Current net income, $6,000.
- Mortgage, $1,200.
- Long-term-care insurance, $300.
- Retirement savings, $1,000
- Other expenses, $3,500
- Add $600 for health insurance.
- Add $100 for prescription co-pays.
- Reduce $400 for work clothes and commuting expenses.
- Reduce $1,000 for retirement savings.
Net income needed to maintain your lifestyle: $5,300.
3. If possible, add a financial cushion. Dallas CPA Wray Rives suggests earmarking an additional 10% of your annual budget for emergency expenses.
4. Where's the money coming from? Match your budget requirements to funding sources:
- Pension: $2,000.
- Social Security: $1,700
With an estimated monthly budget of $5,300, that leaves a $1,600 gap. Assuming a 20% tax rate, you need to withdraw $2,000 a month from retirement savings to have after-tax funds of $1,600.
5. Have you saved enough? Look at how much you've saved to see if your savings will last. Experts generally recommend a drawdown rate of no more than 4% -- anything larger may exhaust your savings too quickly. Here's how those calculations play out:
- $2,000 a month times 12 = $24,000 a year.
- Estimate how long you expect to live. For a 25-year retirement, you'll need a nest egg of $600,000 (25 times $24,000), not counting the earnings and interest you'd continue to gain on your remaining money.
"If you figure there's not enough there, you might consider working longer or taking a hard look at changing your lifestyle to live on less," says Portland, Ore., financial planner Glen Clemans.
6. How will you withdraw what you need? Say that your nest egg is big enough for you to retire. Now you need to consider a withdrawal strategy. Needham Hills, Mass., financial planner Stuart Armstrong suggests a variety of savings "buckets," each geared to a specific withdrawal time frame:
- An early-years bucket. This should be cash or highly guaranteed cash equivalents for the first two years of retirement. "This can help reduce the worry people have in the event there's serious financial market volatility," Armstrong says.
- An intermediate bucket. This should include a wider range of investments, with some growth potential, covering two to 10 years.
- A long-term bucket. This should be money focused on growth potential "to handle the inevitable long-term increases in the cost of living that can hit seniors hard," Armstrong says.
7. Plan on leaving tax-deferred investments intact for as long as possible. By accessing safe, liquid investments first -- such as money market funds and CDs in the early-years bucket -- you also leverage the tax-deferred growth of 401k's and individual retirement accounts. That furthers their long-term growth, which can prove essential in meeting expenses such as additional health care costs that can occur in the later stages of retirement.
8. Consider rolling over a 401k into an IRA. "Most people roll them over, as you have more investment choices outside of your 401k plan at work," says Minneapolis financial planner Sharon Bloodworth. If it makes sense, do it soon, as it can take up to 20 weeks to complete an IRA rollover. Also, Rives says, be sure to contact the bank or investment firm where you will be establishing the new IRA. You'll want to request the paperwork for a direct trustee-to-trustee rollover to ensure a nontaxable transfer.
9. Take a retirement test drive. One fail-safe way to be certain your overall financial plan will work in retirement is to try it out beforehand. If you plan to live on 75% of your current income, try it for a few months to see if it's reasonable.
10. Give notice to your employer, and talk about receiving pension payouts. Most businesses appreciate a few months' notice. Also, it can take several months to start receiving pension checks, so ask how soon you need to file the necessary paperwork. Go through your benefits statements carefully to check for errors. Make sure you get the benefits you were expecting to receive.
11. Social Security -- now or later? You should apply for Social Security three months before you plan to start collecting benefits. Consider how much you need the extra money, your life expectancy and other factors in deciding when to begin receiving benefits. For instance, a monthly benefit of $1,000 that begins at age 66 would drop to $750 if you started at 62. By contrast, waiting until age 70 would boost the monthly amount to $1,320. A handy Social Security retirement planner can be found here.
12. Check your health insurance coverage. If you're under 65 and your employer offers retirement coverage, see what's involved. If not, look into buying your own health insurance, and calculate the expense as part of your overall budget.
13. Investigate Medicare. Most people do not understand how Medicare works or what their Medicare supplement and drug plans do. Don't be one of them. You need to sign up for Medicare three months before your 65th birthday (sign-up is easy online).
"Otherwise, you end up paying a penalty for the rest of your life for your Medicare Part B (medical insurance) and Part D (prescription drug) premiums," says Dover, N.H., financial planner Faye Doria. An easy-to-follow introduction to Medicare is here. If you're still working at age 65, talk to your company's human-resources department about how to coordinate employer and Medicare coverage.
14. Check other forms of insurance. Go over every type of insurance you currently have, including life, homeowners and auto insurance policies. For instance, you may find you have more life insurance coverage than you need. Other forms of coverage, such as disability insurance, may simply be unnecessary in retirement.
15. Look into long-term-care insurance. If you don't already have it, investigate long-term-care insurance before you actually retire. It's expensive, but it pays for expenses such as stay-at-home help and nursing home care. Consumer organizations generally recommend a maximum coverage of four years. The federal government has further information here.
16. Check your beneficiaries. This includes traditional IRAs, Roth IRAs, 401k's and any other retirement accounts. As Doria notes, the money from such accounts goes to the beneficiaries you name in the plans, rather than to the benficiaries noted in your will. You'll also want to check beneficiaries on life insurance, joint accounts and payable-on-death or transfer-on-death accounts.
17. Check your debt level. In a perfect world, we'd all retire debt-free. But that's often not the case. If you have credit card debt, car payments and the like, pay them down as much as possible before you retire. Another option is to refinance your home and roll your debt into the loan amount. You may end up paying less overall (and mortgage interest is tax-deductible).
18. Consider downsizing. You may be living in a house that's bigger than you need or can reasonably afford. If so, you may wish to downsize. Not only might you save on your mortgage and property taxes, but a smaller home may require less upkeep, freeing you to enjoy other aspects of your retirement.
19. Do you want to continue working? Retiring doesn't necessarily mean stopping work. Many retirees work at jobs they genuinely enjoy, such as in a flower shop or a vet's office. Others turn their hobbies into businesses. Not only can post-retirement work be fun; it can also help pay some bills, leaving your savings all the more intact. But, depending on your age and how much you earn, your Social Security benefits may be affected. Check here for additional information.
20. Make sure you retire to something. Too many people retire simply to get away from work, only to find themselves bored and restless. As you approach retirement, identify what you're retiring to, be it a second career, travel, more time with your family or some other rewarding goal. That makes all your planning all the more fulfilling.
Just don't retire to watch more reality TV. Remember, you gave that up.
VIDEO ON MSN MONEY
This was supposed to be an article about thinking through your retirement plan if you plan on doing it soon. Its really sort of depressing that nearly every respondent can't help but taking polks at one political party or another. Oh well, I guess the Christmas spirit goes out the window on December 26th for many.
Getting back to the article (how's that for a novel idea) I would actually caution against combining all my accounts, just in case, something happens to the financial institution or my particular account. WIth several institutions to draw on, you always have a source to draw from while the situation with another gets sorted out.
It's amazing to me that many people approaching retirement have not been focused and committed to making sure that they won't become a burden to their families or society in general. Why is it so difficult for people to understand, and take the actions necessary to provide for themselves at retirement? One simple answer has been the false reasoning, perpetrated by your friendly bureaucrats, that social 'in-security' was all you would need to retire on in comfort.
Why can't people do simple math? You don't suddenly wake up one day to discover that you won't have enough $$$ in retirement to do foolish and wasteful things - like buying $5 coffee! Instant gratification and selfishness is what motivates most people I talk to who aren't prepared for their post-work life. And, when it's too late to do anything about it, they pontificate that 'someone' should have told them about this and 'it's the governments fault' that they don't have enough money saved to have a decent (not lavish) retirement.
No matter where you work, regardless of union membership, and no matter what type of retirement plan offered at your company, the primary responsibility to have enough saved for retirement falls on your own shoulders. Who doesn't understand this? If you want to be safe in retirement, start planning NOW, not 'next year' or in '5 years'. And don't waste a response telling me that 'it's the fault of the 1%, or GW Bush, or evil bankers, or the feds, that you can't save any money. That's nonsense. Adjust your lifestyle, pay down your debts, save as much as possible, pay off your mortgage before retirement (it IS doable), and have NO debt when the day comes to get the 'gold' watch. You'll be better off, and you won't have to look for ludicrous excuses as to why YOU didn't prepare...! IMHO
$2K a month in pension? Who outside government workers has that today? What nonsense
If you have a $1,200 a month mortgage, as in the example, you already failed to plan & or you financed too large of a percentage of your home to begin with. You should have planed to have your home paid off by retirement.
I'll be retiring in a few months with a $100 a month mortgage, Tricare medical coverage (National Guard benefit), and the ability to pay off my home at any time. This is not because I am or ever was rich or did great in investments, It is because I make extra payments, never over extended my self. lived within my means, made sacrifices and never totally trusted the government. I also chose a spouse who shared a commitment to the sanctity of Marriage.
I never had the financial loss because of divorce, or financial loss because of criminal choices, drugs, or alcohol. Those are the choices that can devastate your finances.
Retirement is most sweet when one's 20s and 30s are spent in the pursuit of "motorcycles, marijuana, and $5 records," as Peter Boyle's character, "Joe," put it in the 1970 movie of the same name.
To begin your 40s flat broke (but no debts) and then pull the Vacation For Life rabbit out of the hat 20 years later is priceless. It may take uncommon frugality and attention to things financial, but what kind of kick is there in retiring if your whole adult life is spent buying it?
Happy New Year!
Good News Everyone! I found out I CAN retire before 2013.
Still need to build that reverse time travel machine though...
If you are in your 50's and looking for advice on saving for retirement then I'm sorry to say ITS TOO LATE... For you life sucks and its not going to get much better.
If you are in your 20's and looking for advice on saving for retirement here it is. Put away as much as you are allowed into tax deferred retirement savings each year. Invest in good mutual funds and let that money grow over time. Learn to live on what remains. Saving early and living beneath your means are the keys to becoming wealthy. It can be done but only 1% do it. But then they get the satisfaction of listening to the other 99% complain about how life in the U.S. is unfair.
I forgot to mention, the retiring person in the picture is a doctor, now I understand!
PS: most doctors I know are not spending their time on blogs on a computer, and make a little more than 6 K a month, even after mal practice insurance!!!
Could we please see something about the 50 % of the USA population!!
Like how you pay 250 K for 3 kids in college first (if IQ is over 110) , when the two of you are making 7.50-12,00 an hour!!! and no medical, making about 40 K a year!!!!------
Get real people!
This President has created spending that we have never seen before,
and yes our Kids will suffer if we don't find a way to change this so
called CHANGE that He promised us. It is a Change that neither YOU
nor I can afford.
Wake Up Patrick T
So the article does not do the multiplication for you. 5k a month is 60k a year so if you gonna live for ten years you need 600k. Oh, you gonna make it for forty more? 2.4 Million.
Your only chance for a pension is to work for less as a public servant or join a Union.
Or be an Atty, a Congressman, or MD so you can really milk the system dry.
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