Before you finally and officially retire, it's important to make sure you're ready for such a huge shift in your lifestyle and your finances. Much like a pilot will complete the tasks on a pre-flight checklist before the plane ever leaves the ground, you should read through and complete the tasks on your retirement checklist before deciding to leave the workforce forever.
Here are six things you must do before you make the leap.
Look into long-term care insurance (10-15 years before retirement)
If you're going to buy long-term care insurance, the best time to do so is in your 50s, not your 60s. Your premiums will be much lower if you buy the policy this early. Plus, by getting that decision out of the way so far in advance, you'll simplify the often chaotic pre-retirement years by resolving one of your critical decisions.
Because the majority of retirees will need long-term care at some point, and the costs can easily run into the six-figure range, long-term care insurance is likely a good financial move. At least look at a few policies and consider how they'd fit into your retirement budget. If you decide to pass on long-term care insurance, you'll definitely need to come up with some other way to pay for long-term care.
Write your bucket list (at least 5-10 years before retirement)
Every retiree needs a bucket list -- a list of all the things you want to accomplish or experience before shuffling off this mortal coil. If you're not entirely sure how you want to spend your days as a retiree, a bucket list can point you in the right direction. For example, if half the items on your bucket list involve traveling to different countries, then you should figure out how you'll fit all that traveling into your schedule and your budget. If you already have a bucket list, take it out every few years, cross off anything you've accomplished, and add anything new that's occurred to you since the last review.
Too many retirees start to feel aimless when they don't have work and other obligations to fill their time. Start thinking about how you'll find joy and purpose in your life in retirement -- and even consider continuing to work at least part-time, because in addition to padding your income, it may have a number of physical and mental benefits.
Evaluate retirement living situations (5 years before retirement)
It's best to start thinking about where you want to live during retirement a few years before you actually retire. You don't have to pick a specific house or apartment, but you should at least narrow your options down to one geographical area and one type of living situation (a house you own, a rental, a retirement community, a family member's home, a series of cruise ships, etc.).
Making these decisions well in advance gives you the opportunity to do some research and make some visits to the place you're considering. And if your dream destination turns out to be a big disappointment, you still have plenty of time to come up with a plan B.
Craft a retirement budget (2-3 years before retirement)
OK, budgeting is boring. But it's still important to write up at least a basic retirement budget and compare it to the sources of income you'll have. If the numbers are way out of whack, you need to know this before you retire. For example, if you add up your anticipated expenses during retirement and reach a total of $4,000 per month, but your income -- including Social Security benefits, retirement savings accounts, and other sources of income -- will only come to $3,000 per month, then you need to either cut some expenses or find additional sources of income. It'll be a whole lot easier to make those kinds of corrections a year or two in advance than it would be after you retire.
Make a final decision on claiming Social Security benefits (one year before retirement)
The age at which you claim your Social Security benefits will have a significant impact on how much money you end up getting each month. Claim early, and your benefits will be permanently reduced. Claim late, and you'll get "delayed retirement credits" that can give a nice boost to your benefits checks. Claim at your "full retirement age," and you'll get exactly the amount specified on your Social Security statement.
If you're within a year of your planned retirement date, you've probably already thought through when you want to claim Social Security -- but until you know the actual amount of your benefits checks, this decision is at least partly theoretical. And because Social Security benefits are based on your earnings, you won't know how much you'll get until you're fairly close to retirement. That's why one year before retirement is a great time to look at your Social Security statement, do the math on claiming early versus late, and work those numbers into the budget you created in the previous step.
Make your Medicare decisions (the year you turn 65)
Missing your initial Medicare enrollment period can create a host of problems, so by the time you turn 65 it's important to know what you're going to do about Medicare. And many of the initial enrollment decisions are irrevocable -- or at least very messy to fix. For example, if you decide to get a Medicare Advantage plan but later want to switch to Medigap, you might find it impossible: Medigap providers are required to let you enroll during your initial enrollment period, but after that they can decline you for a variety of reasons, including pre-existing conditions.
At least three months before your initial enrollment period begins, look at the Medicare plans available in your area and compare Medicare Advantage with original Medicare plus Medigap to see which is a better fit for your needs. Pick out two or three plans that you like and rank them in order of which you prefer. Then, when your initial enrollment period begins, go back to the list of plans in your area and look at them again. Confirm that you really want to get the plan you picked during your first round, and if not, pick out a different option. Starting the decision-making process early gives you plenty of time to double-check yourself, think up alternatives, and generally be as sure as possible that you're making the best decision for your future.
The Motley Fool has a disclosure policy.
More from The Motley Fool
People's United Financial, Inc. (PBCT) Q4 2017 Earnings Conference Call Transcript
PBCT earnings call for the period ending December 31, 2017.
IBM Struggled With the Tax Man in the 4th Quarter
A long-awaited return to actual sales growth was overshadowed by a $5.5 billion one-time tax charge.
1 Big Improvement That Apple Needs to Bring to the New iPhone SE
It's time for a new display.