When you think of retiring, what do you see? For many, it's a chance to travel, while for others it's the opportunity to spend more time with family, or finally buy that fishing or sailboat and get out on the water. No matter what you picture yourself doing, the chance to finally having the freedom to do anything -- or nothing -- is enticing.
Unfortunately, those dreams are often interrupted by a reality people didn't expect or plan for. Before you retire, it's time to take a hard look at these things first.
Will your retirement plans meet your emotional needs?
A surprisingly common regret that many older retirees have is that they stopped working too soon. The allure of freedom that retirement offers, unfortunately, doesn't always pay off, and eventually the interests that retirees thought would keep them busy and fulfilled fall short, leaving people with time on their hands and nothing to do.
There's also the loss of accomplishment and fulfillment that many people get from their work, that they completely walk away from in retirement. The absence of something that fills this important emotional need can lead to stress, isolation, and even depression.
Think about it this way: When you're ready for retirement, you can walk away from work at anytime. But as you age, it's a lot harder to go back to work. Before you retire, make sure you have a plan for what you'll do to fill your time and give you a sense of fulfillment. Chances are, playing golf every day will be less fulfilling than you expected. Think about the other 21 hours of the day.
Whether you decide to work a bit longer, continue working part-time, start a small business, or volunteer with a favorite nonprofit, think beyond the income, and consider what else your work gives you that you'll need to replace in retirement. The point is, even if you're financially prepared to retire, make sure your retirement plans take your emotional needs into consideration.
Have you tried living on your retirement income? You may have less than you think
The average American who is near retirement age may be a lot less financially prepared than they realize.
According to Vanguard, which manages retirement plans for almost 4 million Americans, the median account balance for those over 55 was less than $78,000. If you retire at 66 and live to 80 -- about the average -- that's less than $6,000 per year in income.
Fidelity also manages retirement savings for millions of Americans, and says that many near-retirees aren't financially prepared. A recent Fidelity study reported that the average Baby Boomer is only prepared to cover about 80% of estimated retirement expenses.
The point is, millions of American retirees are going to come up short. Unfortunately a lot of them don't even realize it.
One step you can take is to live on your retirement budget before you actually retire. Obviously you'll have to adjust it based on certain expenses that you can't avoid such as work costs, but when it comes to basics like food, utilities, and entertainment, spend a year before you retire living off your retirement income.
If it turns out you can't live within those means, it's better to learn when you're still working then after walking away. It's easier to adjust your plans up front, which could include putting off retiring a few years, or some of the things discussed above such as starting a business or working part time.
You may also want to delay claiming Social Security retirement benefits. For 2016, age 66 is the "full retirement age" where you're eligible to receive 100% of your benefit. But for every year (up to age 70) you delay getting your benefit, the monthly payment goes up about 8% per year. And while you'll probably get about the same dollars in benefits before death whether you take Social Security at 66 or 70, those higher payments when your other retirement balances are exhausted could make a huge difference later in life, especially if you outlive the averages.
Older Americans, debt, and homeownership
80% of the 41 million Americans 65 and over own their homes. This is definitively good, as there is strong correlation between homeownership and a better-quality retirement. Unfortunately, a 2014 study by the U.S. Consumer Financial Protection Bureau showed a concerning trend: the percentage still making mortgage payments has skyrocketed over the past decade-plus. From 2001 to 2011, the percentage of 65 and over Americans with a mortgage surged from 22% to 30%. Even more concerning, 21% of homeowners 75 and over still have a mortgage, more than double the 8.4% rate in 2001.
And it's not just having a mortgage that's the concern. The median mortgage debt increased 82% over the measured period, to $79,000.
There's a two-edged danger to debt for retirees. To start, it means more of their already-limited income is available for other basic needs, including food and healthcare. According to a study by Harvard University, seniors with more housing debt will spend less money on average for their basic needs.
Frankly, it's not just mortgage debt that's weighing on America's seniors:
Bottom line: The more debt you have when you retire, the more of your limited resources you'll have for other expenses.
Retire when you're truly ready
Retirement brings a multitude of changes to your life and it's imperative that you go into it prepared, and with the right expectations. So before you punch the clock for the last time, ask yourself the hard questions first, and make sure you've taken steps to have the retirement you deserve and want.
You may find out you're not as ready as you thought, but that's a lesson you're far better off learning before you retire. Putting off retirement long enough to make sure you're ready is much easier than trying to figure things out after you've already retired.