Posted on: July 21, 2022 Posted by: TigerWebs Comments: 0

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Woman managing finances

The decision to retire should not be taken lightly — it’s a huge lifestyle change and there are several risks associated. Indeed, research shows that as many as 75% of Americans believe the country is facing a retirement crisis.

With this in mind, you’ll need to weigh up each of your options, plan carefully to get your affairs in order, and pick an appropriate time to take the leap.

Here are seven important things to deliberate on before you make a final decision about retiring in the near future.

1. Are You Handing Over a Business?

Planning for retirement is much more complicated when you run a business. While an employee can completely detach from their former working life once they’ve handed in their notice and said their goodbyes, business owners typically have a lot more skin in the game.

You’ll need to appoint a successor, who might be a family member or an existing employee, and develop a detailed business plan to prepare your company for its new ownership.

Other important factors to consider are how to extract the money you’ve invested in the company over the years, your future involvement, and the option of selling some (or all) of the business to an external investor.

2. Will You Continue To Work in Some Capacity?

More than 50% of Americans plan to continue working after retirement. While insufficient savings is the reason cited by 35% of people, there are several other benefits to staying in employment.

Continuing to work in some capacity can help you to maintain purpose, stay active, keep your brain engaged, and preserve a busy social life.

One option is to have a phased retirement, which means you would gradually cut back on your working days. Other retirees pursue roles in the gig economy or opt to do volunteer work.

3. What Will You Do During Your Retirement?

Do you hope to spend the first few years of your retirement traveling the world via first-class flights? Or does a happy retirement for you look like a remote cottage in the countryside?

Your lifestyle requirements will dictate how soon you can retire. Are you willing to make some sacrifices (such as downsizing to a smaller property) to fund an earlier retirement, or are your usual home comforts worth a few extra years in the workplace?

Decide what your dealbreakers are and develop an annual budget, allowing some wiggle room for error and emergencies. As many as 43% of American workers guess how much they need to retire, rather than basing their predictions on current expenses or using a retirement calculator. For reference, in 2020, the average annual spending by Americans aged 65 and older was $47,579.

There are various retirement calculators available online, like this one, that can help you plan the financial aspects of your retirement.

4. How Much Money Do You Have?

Start by taking a detailed inventory of all your assets. This should include any debts, personal savings, inheritance, ongoing income (such as rental payments for any properties you own), vehicles, and valuable possessions.

Next, check how much money is tied up in your workplace pensions plans (e.g. a 401(k) plan) and/or your Individual Retirement Account). While there are certain tax shields in place that make both of these pension schemes appealing, you’ll need to consider how you want to withdraw this money once you retire. For example, do you want to take a lump sum or receive monthly payments? You do have the option of moving some of your money around. For example, shifting some of your 401(k) contributions to a Roth 401(k) could help you to avoid large tax bills once you start withdrawing money.

Once you’ve figured out your workplace pensions, it’s time to find out how much Social Security you are entitled to. Approximately one-third of the working population and 50% of retirees expect Social Security to be their major source of income after retirement. This Retirement Estimator will calculate a benefit amount for you based on your Social Security earnings record.

Finally, don’t forget to take inflation into account — particularly under the present circumstances. Your savings pot won’t be worth what it is today in 10 or 20 years.

If the prospect of managing your finances feels overwhelming or confusing, it might be worth hiring a financial advisor.

5. Do You Have Suitable Health Insurance?

Post-retirement healthcare will likely be a major expense and must be accounted for in your budget planning.

In 2020, for example, the Bureau of Labor Statistics’ Consumer Expenditure Survey reported that healthcare for those aged 65 and over costs $6,749/year. Post-65, you’ll be able to depend on Medicare for many of your needs, but make sure you understand the exemptions. It’s also worth reviewing your current health insurance plan and exploring alternate options. 

6. Have You Paid Off Your Debts?

Assuming that your income will significantly decrease once you retire, you’d ideally like to be debt-free. Any fixed-term payments will take up a significant portion of your monthly expenses and leave you with less disposable income to enjoy your retirement.

If paying off all your debts pre-retirement isn’t feasible, try to get on top of those with the highest interest rates, such as credit cards and personal loans.

7. Trust Your Instincts

The most important thing to keep in mind as you weigh up your options and start to put plans in place is that shaping a retirement plan is an extremely personal process.

While it’s vital to be stringent and realistic with regard to financial planning, pretty much everything else is totally subjective. Don’t lose sight of what you want from your retirement or the things that make you truly happy.

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