Some people map out a retirement age and work toward the goal of ending their careers at a specific time. And to be clear, that's a good way to go. But if you're thinking of retiring, you'll need to make sure you can definitively answer these questions before making that decision.
1. What Social Security benefit am I in line for?
There's a good chance Social Security will serve as an important source of income for you. But the monthly benefit you're entitled to may be smaller than you think.
That's why you must figure out how much income the program will provide you with before leaving the workforce, and you can use your most recent earnings statement as a starting point. If you didn't receive a copy in the mail, you can access it on the Social Security Administration's website.
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Your earnings statement should include an estimate of your benefit at full retirement age. But if you don't plan to file at that age, then you'll need to do the math to figure out how much money you'll get. A monthly benefit of $1,600 at a full retirement age of 67 will become $1,387 if you file for Social Security at age 65. Or, you could grow that benefit to $1,856 by filing at age 69.
2. How much annual income will I get from my savings?
You may be nearing your planned retirement age with a nice pile of money in your IRA or 401(k) plan. But before you decide to let go of your paycheck, you'll need to figure out how much annual income your savings plan will give you.
If you're sitting on $1 million in savings and you decide you're safe to withdraw 3.5% of your balance every year, that's an annual income of $35,000. But if you have a traditional IRA or 401(k), that income will also be taxable, as might your Social Security benefits. So you'll need to look at the big picture and make sure you're in line for a high enough monthly income to cover your expenses.
3. What will I do about healthcare?
If you're retiring at age 65 or later, you'll be eligible to sign up for Medicare. You can choose between original Medicare or Medicare Advantage, which works more like the private insurance you may be used to.
If you'll be retiring before age 65, however, then you'll need to figure out how you'll secure health coverage. If you have a working spouse whose group health plan you can join, that solves that problem pretty easily. But if you're single, or if you're married and you and your spouse are retiring at the same time, then you'll need to explore other options, whether it's retaining employer coverage though COBRA or buying a new plan.
Either way, make sure to research what your health coverage will cost you. The last thing you want is to face higher premiums than expected while trying to adjust to a new set of financial circumstances.
You may be ready and eager to leave your career behind and kick off retirement. Or maybe you're nearing that point but aren't quite there yet. Either way, make sure to tackle these questions before bringing your time in the workforce to a close.
