If you're nearing retirement, you're most likely excited for what lies ahead. But before you say goodbye to the workforce, there are a few steps you'll need to take to ensure that you're ready for this giant milestone.
1. Assess your savings
Unless you have a pension or another steady source of retirement income, once you stop working, you'll probably come to rely on your nest egg, coupled with Social Security, to pay the bills. Therefore, you'll need to make sure that you've saved enough to buy yourself the lifestyle you're hoping for.
Now, the tricky thing is that there's no magic savings number that guarantees a financially secure retirement. However, as a general rule, you can expect to withdraw about 4% of your nest egg's value each year without worrying about depleting it prematurely. This means that if you're sitting on $600,000, you'll have $24,000 a year to work with. If that, combined with your Social Security benefits (which you can estimate by looking at your statements or accessing your account online), is enough to live on, then you're set. Otherwise, you might consider postponing retirement or figuring out other ways to generate more income during your senior years.
2. Decide when to claim Social Security
Though your Social Security benefits are based on your earnings record, the age at which you first file for them could impact your ultimate payout. You get an eight-year window to claim benefits that begins at 62 and ends at 70 (technically, you don't have to file at that point, but there's no financial incentive not to). In the middle of that window is your full retirement age (FRA), which is when you're entitled to your full monthly benefit based on your earnings history. File before FRA, and you'll see your benefits reduced -- though you'll get to collect them sooner. Hold off past FRA, and you'll snag an 8% boost in payments for each year you delay, up until age 70.
There's no right or wrong answer when it comes to choosing an age to take benefits, so your best bet is to determine the pros and cons of filing at various points during your eight-year window and seeing what makes the most sense for you. If you're relying heavily on those benefits to pay the bills as a senior, you might consider waiting until FRA or even beyond. On the other hand, if your savings are strong and you plan to use the money for leisure purposes only, you may want to get at it sooner. Think about the role Social Security will play in your retirement and pull the trigger accordingly.
3. Figure out your health coverage
If you retire at age 65 or later, you're eligible to receive health coverage under Medicare. But because there are many services traditional Medicare doesn't cover (dental, vision, and hearing, to name a few), you may want to think about getting a Medicare Advantage plan instead. Furthermore, if you retire before reaching 65, you'll need to secure health coverage on your own, whether it's via COBRA or by purchasing a plan on the open market. Just make sure you have a policy in place because you don't want to kick off retirement with a costly medical expense that isn't covered.
4. Map out a retirement budget
Unless you've saved really well for retirement, you'll probably experience a drop in income once your paychecks go away. Therefore, it stands to reason that the expenses you take on in retirement shouldn't necessarily mirror the ones you're paying for while you're still working. Before you make your retirement official, create a new budget that maps out your monthly spending, keeping in mind that while certain costs, like commuting, will go away, others, like leisure and healthcare, might climb. This way, you'll know how much you can afford and will be in a better position to evaluate your savings as per the point above.
5. Determine how you'll occupy your time
There is a reason retirees are 40% more likely than workers to suffer from depression -- all that free time on your hands can easily lead to boredom and feelings of worthlessness. That's why it's crucial to figure out how you'll spend your days before leaving your career behind for good. Maybe you've always wanted to volunteer at an animal hospital, or you're eager to spend more time with your grandkids. It doesn't matter what you do with your time as long as you're confident you can fill it meaningfully. And if you can't, you may want to consider a partial retirement rather than go in full force.
Retirement can be an unsettling period of life if you go in unprepared. As you gear up for this exciting stage, be sure to tackle these key items first. You'll be thankful you did.