You've worked hard all of your life, and now it's time to look toward retirement. But leaving the workforce is a major decision, and there are numerous factors to consider before pulling the trigger. If you're set on retiring this year, be sure to do these things first.
1. Review your projected retirement income
Before you pull the plug on your career, make sure you actually have enough income to sustain yourself in retirement. To do this, you'll need to examine your various sources of income, which might include an employer-sponsored pension, your personal retirement savings, and Social Security.
The latter is actually fairly easy to anticipate; all you need to do is review your official benefits statement to see when you're eligible to receive your full benefits and what your monthly benefit amount will be. And if you don't have your physical copy handy, you can access your benefits online. Once you get a good sense of how much income you can expect in retirement, you'll need to weigh that figure against your anticipated expenses, which leads to our next point.
2. Create a new budget
You may have a good idea of how much money you're spending on living expenses now, but those figures might change once you're no longer working. While your commuting costs, for example, might go down, there's a good chance you'll spend extra on entertainment once you have more free time on your hands. Additionally, there's a strong possibility that you'll spend more on healthcare in retirement than you do in your late 50s or early to-mid 60s.
The only way to know whether your expected income stream will suffice in retirement is to create a new budget and compare your projected spending to the amount of money you'll have coming in. If the numbers work, and you have enough income to cover your living costs, then take it as a sign that you're ready to retire. If not, you might consider working an extra year or two to generate some additional savings.
3. Max out your retirement plan contributions
While you might be at the point where you're counting down the months, weeks, or even days till retirement, you should continue saving as much as you can while you're still working. If possible, max out your retirement contributions, or add as much of your salary as you can swing to your IRA or 401(k). And if your employer offers a 401(k) match, be sure to contribute enough to get all the free dollars you can snag.
Once you stop working, you'll be limited to a fixed income, so the more money you're able to save last minute, the greater your cushion will be. For 2016, you can contribute up to $24,000 to a 401(k) and $6,500 to an IRA if you're 50 or older.
4. Pay off or sell your home
The less debt you have going into retirement, the easier it will be to live on a fixed income. Though not everybody can do so, paying off your mortgage before retirement is a great way to eliminate at least one major expense and potential source of financial stress. Along these lines, you might consider selling your home altogether and moving to a rental.
Even if you've paid off your mortgage, owning a home in retirement can be a risky prospect. When you own property, you face the possibility of growing maintenance costs, expensive repairs, and increasing real estate taxes. Eliminating these unknowns could make for a far more financially secure retirement.
5. Adjust your investments
Stocks are a wise investment when you're years away from retirement because their comparatively higher returns are crucial in growing your nest egg. But as you get closer to retirement, you should shift more of your investments into safer alternatives like bonds.
If you're getting set to retire, review your portfolio and make sure your assets are properly allocated. Keep in mind that this doesn't necessarily mean moving all of your money out of stocks. In fact, holding dividend stocks can be a smart move in retirement. But if you don't have another solid source of income or a particularly hearty appetite for risk, you should consider limiting your stock investments if retirement is indeed right around the corner.
Retirement is a major life step, so before you officially bid your career adieu, make sure you're really ready on all levels. Remember, just because you may have planned all along to retire at a certain age doesn't mean you actually need to go through with it.
Similarly, retirement doesn't have to be an all-or-nothing prospect. There are other options, like semi-retirement, that might better serve your financial and emotional needs, so be sure to explore all possibilities before settling on one particular path.