In light of the pandemic and recession, retiring in 2021 may seem more complicated than it did when you picked out your retirement date all those years ago. But retiring comfortably this year is still possible, assuming you've crafted a sound financial plan that can see you through a few decades.
You can never be too careful in retirement planning, though, so before you tender your resignation, do the following three things to make sure you're financially ready.
1. Go over your retirement plan one more time
Look over your retirement plan and verify that you've saved enough. Your retirement goals may have changed throughout your working years, your investments might not have performed as well as you'd hoped, or you may have failed to save as much as you wanted to at some point. These things could mean you're not actually ready to retire yet, even if you're ready to stop working. It's better to know that up front so you can make adjustments, rather than try to deal with the consequences later in your retirement.
Your retirement plan should include a rough estimate of how much you'll spend each year. Make sure you're still satisfied with this amount. If you've spent a lot more than that in the last few years, that might indicate you'll need a little more annually than you'd thought.
Consider how you plan to spend your retirement. Your expenses might go down, but some people, especially those who plan to travel a lot, might spend about the same or maybe even a little more than they're used to, at least in the early years of their retirement. Spending typically decreases as we age and life slows down, unless you have large medical expenses.
If you're concerned about not having enough money, you should delay retirement by a few months or years until you've saved enough. You can also try contributing extra each month between now and your planned retirement date if you're only off by a little. Individuals under 50 may contribute up to $19,500 to a 401(k) and $6,000 to an IRA in 2021, while anyone over 50 may contribute up to $26,000 and $7,000, respectively.
2. Think before starting Social Security
You should have a plan for Social Security, and now is the time to weigh all your options. The age you begin benefits has a significant impact on how much you'll receive over your lifetime.
You must wait until your full retirement age (FRA) in order to get the full benefit you're entitled to based on your work record. This is 66 or 67 for today's workers, depending on birth year. You can start as early as 62, but you'll only get 70% of your scheduled benefit per check if your FRA is 67, or 75% if it's 66.
You can also delay benefits past your FRA, and your checks will gradually rise until 70, when you'll get 124% of your scheduled benefit if your FRA is 67, or 132% if it's 66.
Delaying benefits until your FRA or beyond is usually the smart play if you expect to live into your mid-80s or longer.
If claiming Social Security is the only way you can afford to retire this year and you're comfortable with potentially reducing your lifetime benefits, it might be worth starting Social Security as soon as you retire. If not, you might want to continue working until you've saved enough to cover your expenses for a few years without Social Security. Then, you can delay benefits until you qualify for larger checks.
3. Have a plan for debt
It's difficult to predict how much debt you'll carry into retirement if you're still decades away. This is especially true with high-interest borrowing, like credit card debt.
As you near retirement, this is a little easier to figure out. It's not impossible to retire with debt, but it can be risky. If you have a mortgage and fall behind on your payments, you could lose your home. Credit card debt that spirals out of control could end up costing you more than you expected and drain your savings more quickly.
Before you retire, take stock of your debts and plan to get rid of them if you can. Aim to pay off high-interest debt before retirement whenever possible. You can use a balance-transfer credit card to temporarily stop your balance from growing or take out a personal loan so you have a predictable payment that's easier to manage in retirement.
Using your retirement savings to pay off your debts might be possible, but you'll have less money to see you through your retirement. Try to avoid tapping your retirement savings for debt repayment if you can. Use any extra money you have or work a little longer to pay down your debt before retirement.
You're about to transition to life on a fixed income, and there's potential for it all to go very wrong if you haven't planned appropriately. If you don't feel confident in your ability to retire comfortably right now, go back to the drawing board and play around with some different scenarios to find out how much longer you'd have to work and how much you'd need to save to get the money you need.