Answers to common questions around retirement

By Irel Wong December 18, 2020

Photo by Anukrati Omar on Unsplash

Preparing for retirement can be both exciting and nerve wrecking especially if you are on the verge of taking the long-awaited leap. After much thinking and consideration of all the factors, you want to make sure you have all bases covered. Common questions surrounding having enough money, health care costs, life insurance, unexpected disasters, life expectancy and so much more can add layers of fear and complexities when making your decision. Before deciding, here are some moves to make that will help in your decision making and give you that peace of mind as you plan on enjoying your latter years. 

Debts

Going into retirement with a large amount of debt is not recommended. You don’t want to go into your golden years worrying about how you are going to pay creditors every month when you should be carrying less stress during this time. Work on paying off large debts now and as quickly as possible. This includes mortgages, student loans, credit cards, car loans and other outstanding debts that will put a strain on your finances during retirement. If you are close to retirement and still have debts you should create a plan on how to pay them off. Continue working as much as can and put your income towards being debt free. Speak to someone that you can trust about your financial situation and ask them to hold you accountable. This can be your children, a close relative, a family friend or a financial advisor. If you meet with a financial advisor, make sure they are not recommending products to you so that they can make a commission. Your goal is to get out of debts, not to focus on investments at this stage. Once you formulate a strategy with a budget, make sure you stick to it and be consistent. A plan late in the game is better than no plan at all so don’t feel hopeless or defeated. You can still enjoy your latter years, but you may just have to work a little longer.

Common Expenses

As much as we would like all our bills to evaporate and somehow get paid mysteriously, they are a reality we must deal with all our lives. Aside from large debts, there are common expenses that we have weekly and monthly. These include utilities – electricity, water, gas, phone, internet, tv. There are home insurance costs (if you decide to), real estate taxes on your home, property maintenance, groceries, vacations and any other expenses you may have. If you have a business it can get even more complicated, but all these are expenses that you will have to deal with in retirement. Make sure you account for these expenses as you do your planning. They may seem as little amounts individually but when added together these can surmount to a large figure.

Savings

If you are between your Thirties and fifties, make sure you are maximizing your savings towards your retirement. Many companies nowadays offer savings retirement plans as a benefit so make sure you take advantage of them. These can be in the form of a 401K, 403b, IRA, Roth IRA or pension plan. If your company doesn’t offer one of these then seek a financial advisor who can guide you into a savings financial plan for your retirement. I like to stress the importance of finding a good financial advisor, one that will not push you into buying investment products that doesn’t benefit you in the long run. A good financial advisor will guide you into a plan that works for your unique situation and have an end goal in mind. Save as much as you can so that during your retirement years you will have enough to sustain you each month. Remember, inflation will cause everything to increase in price so things that you pay for now will cost more in your older years. If you are close to retirement and you have no savings, start now. It’s better to be late than never but try to work as long as you can so that you have something in your savings. Try to think of yourself living past a hundred years old and create a savings plan that will take that into consideration. It may seem like an aggressive savings strategy, but the fact is you may live that long. Start saving more now, no matter where you are on the income scale. Life is uncertain and it’s better to leave an inheritance behind than to struggle in your latter years.

Healthcare

As you get older, your body also starts to grow frail and healthcare becomes more of a necessity. Currently, people who are at the age of 65 or older are eligible to receive Medicare. Medicare is a reduced cost health insurance plan for the elderly. You should contact the Social Security office about three months before your 65th birthday to sign up for it. Sign up for Medicare even if you don’t plan to retire at age 65. Depending on your health situation you may need additional health insurance that will help you with your doctor visits and prescriptions that Medicare doesn’t cover. Try to stay as active as you can with light walks daily, swimming, tennis, community or church activities are good ways to keep active. Make sure you visit your doctor consistently and follow up with all medications and prescriptions. 

Life Insurance

As you plan for retirement keep the real purpose of life insurance in mind. Life insurance is a way for your loved ones to still have an income in the event you pass away. If you are currently working and you need that extra income because you still have a high amount of debts, then having life insurance when you retire is a wise choice. If all your debts are paid off and you have a good amount of savings, use life insurance at your discretion as it’s not a necessity at that point. Life insurance may be used for different reasons and some people use it strategically. If you have a mortgage that you still owe a substantial amount on, having a life insurance policy to cover funeral expenses along with the mortgage is a good plan. Some people have policies that they use to leave an inheritance for their loved ones. Whatever your plans are, make sure life insurance is a consideration as a part of your retirement.

Retirement Plans

If you have a 401K or 403b plan, you won’t be able to access it without penalty until age 59½. Try not to touch your retirement plan unless in cases of dire emergencies and even then, try to exhaust other resources first. Early withdrawals from a retirement fund comes with an automatic 10% penalty and that’s money you won’t be able to recoup. It’s better to take a loan so that you can pay it back without that penalty. Remember the goal of your retirement plan is to sustain you during your retirement years. You want to have it there for you when that time comes.

Social Security

Social Security is a retirement benefit that you get when you retire. You are entitled to this benefit when you work and pay social security taxes. The amount of taxes you pay determine the amount of credit you earn and ultimately how much you receive when you retire. The full retirement age to receive social security is 66 if you were born from 1943 to 1954 and gradually increases until age 67. You can see the chart for specifics on the Social Security website at: https://www.ssa.gov/pubs/EN-05-10035.pdf. You can receive retirement benefits as early as age 62 but your benefits will be reduced if you retire before your full retirement age. If you worked for most of your life and paid your share of social security taxes, this will be a welcomed supplement to your income.

Last Will and Testament and a Living Will

Most people stay away from wills because of the reality associated with it about our mortality. As we get older, we should feel more comfortable with the fact that we are not going to be around forever. The best thing we can do for our loved ones is make preparations so that when we are not able to make decisions anymore or when we are not around, they are not left to deal with tough choices and expenses that we left behind. Wills are designed to help in this area. As you prepare for retirement there are two types of wills to think about – a Last Will and Testament and a Living Will.

A Last Will and Testament is a legal document that has met the state’s requirement designating who to give your assets after you die. Your will should name an executor who is the person responsible for carrying out the directive of your wishes. This is important if you have some amount of assets that you will leave behind so that your loved ones are clear on what your wishes are. Make sure you check on the criteria for your state as each state has different specifications. 

 A Living Will on the other hand gives direction on what you want while you are still alive but unable to speak or make decisions on your own. This is important as it lays out how you want your medical treatment to be administered, whether to resuscitate you or not, instructions about donating your organs and tissues and naming someone you designate as your power of attorney. Again, check with your state for its requirement as each state has its own criteria. 

Planning for retirement doesn’t have to be difficult and frustrating if it’s done proactively and with proper guidance and information. As you plan and prepare for this wonderful time of your life, don’t forget to surround yourself with the people you value and treasure most. Take time to enjoy yourself, appreciate every moment and be thankful for today.