Knowing whether or not you’re ready to retire requires evaluating a number of different aspects of your life. With so many variables to consider, ensuring retirement readiness can easily begin to feel overwhelming. If you’re trying to decide whether or not you’re ready to retire, start with these six tasks. Each of these tasks takes time, but completing all of them can help you feel more confident as you approach retirement.
Calculate How Much You Need
Before retiring, you’ll need to determine how much income you’ll need in retirement. The problem is that planning for retirement requires figuring out what your life will look like decades from now. One way to prepare more effectively is to create a financial plan that considers a lot of different variables like inflation and life expectancy. A comprehensive financial plan helps ensure you’ve accounted for the circumstances life can throw at you.
Figure out Income Sources
Once you know how much income you’ll need, you must identify your various sources of retirement income. One of the most common sources is Social Security. Military retirees also receive a military retirement pension, which provides a second stream of government payments in retirement. Retirement savings provide a third common source of retirement income. If your retirement income needs are greater than your retirement income from these sources, you may need to save more before you retire. Retirement savings plans such as 401(k)s and IRAs are designed for this, as is the Thrift Savings Plan (TSP), a retirement savings and investment plan for federal employees and members of the uniformed services – the military’s version of a 401(k).
When you live on a fixed income, debt reduces the money you have to live off. This includes (but not limited to) mortgages, student loans, credit card debt, and car loans. To make the most of your retirement, you may want to eliminate as much debt as possible. If you have any dependents or children still living at home, be extra careful about taking on debt after retiring. You’ll want to have a discussion with your dependents about future financial obligations. For example, how much are you willing or able to contribute to their higher education costs? Having these conversations prior to retiring can set expectations and minimize stress later on.
Medical expenses are one of the leading causes of financial setbacks for retirees. This is one area where military retirees have an advantage since they have both Medicare and Tricare for Life, which is what Tricare switches over to after age 65. In order to avoid unexpected expenses, you’ll want to take the time to learn what your health insurance does and does not cover. If necessary, you may want to purchase Medigap coverage, which is a type of insurance specifically created to cover the gaps in Medicare health coverage. You may also want to look into long-term care insurance, which can help cover costs associated with long-term care that many health insurance plans fail to cover. The ideal time to purchase long-term care insurance is in your late 50s or early 60s.
Create a Contingency Plan
Before retiring, you’ll want to create a contingency plan that prepares you and your loved ones for any unexpected events or emergencies, such as a health crisis or a financial setback. You may feel like creating a plan for these events is premature, but that’s exactly why you should create one now. A plan is useless if you don’t have it before the event occurs. Waiting until after a health crisis or other potential issue has arisen almost always causes more stress and confusion for both you and your loved ones.
Discover Your Purpose
Retirement readiness is not just about the financials and paperwork. Before you retire, you’ll want to discover what your purpose in retirement is going to be. Many retirees struggle with the transition to retirement. Though a great retirement looks different for everyone, a few things that all happy retirees have in common is a sense of community and working towards goals. Just like in any other part of life, you may not know your purpose immediately. Create a plan before retiring, but be flexible. This part of retirement often requires some trial and error. Try different schedules, hobbies, amounts of social time, or volunteering. Also, make sure to discuss your plans with your family. Maybe your children assume they’ll be able to rely on you for consistent childcare, but you might plan on traveling instead.
There is no one-size-fits-all retirement plan. What works for one person may not work for another. But all retirement requires planning and preparation. For questions about your specific retirement needs, consult a professional. Veterans may be eligible for many other benefits at either the state or federal level. To ensure you’re making the most of all the options available to you, consider working with a Relationship Manager here at AAFMAA Wealth Management & Trust.