Retirement is a phase in life that many people anticipate and fear at the same time. This is because it can be scary due to the uncertainty it brings. However, this uncharted territory is something that one must explore at one point or another.
The good news is that there are ways to prepare for retirement. Proper preparation can help a person avoid the uncertainty that retirement brings. With proper preparation, a person who’s about to retire knows exactly what to expect. This can help make retirement a welcome respite after decades spent doing the same job.
Successful retirement plans for seniors are only possible with careful preparation. Five years before retiring, a person should already be making plans and setting them into motion if that person wants to ensure a relaxing and fulfilling retirement.
Here are a few things that one should do five years before retiring:
Maximize Your Time
Five years is a short time for those who are about to retire. Seniors should carefully plan their timeline, so they can make the most out of these remaining years before retirement.
The best way to go about this is by creating realistic goals on what seniors want to accomplish during the said years. Seniors should create goals that will help them transition to a new life and make their retirement comfortable.
For example, seniors can allot the first two years towards ensuring that all of their liabilities are settled. Some retirees are unable to fully enjoy their retirement because of debts that they need to pay off. Seniors should strive to settle debts while they are still earning consistently.
The years prior to retirement are also the best years to take a hard look at one’s lifestyle and make necessary changes. One can start minimizing their spending so they can save more or increase the amount that they allot for investments.
Seniors can defer costly vacations since they’ll have more than enough time to enjoy them during retirement. It may also be a good idea to cut back on eating out at expensive restaurants.
Another way of maximizing the years before retirement is by learning new hobbies or acquiring new skills. After decades of being in a workplace with an active environment, retirement can lead to boredom. With a new hobby, seniors can stay productive even during retirement.
New skills can also come handy. Some seniors try baking, arts and crafts, or writing. These are worthwhile skills to learn. Aside from keeping seniors busy, these skills can become sources of additional income that can help make retirement more productive.
Anticipate your retirement living expenses
One’s living expenses can drastically change during retirement. Some expenses may go up while others may decrease. Travel expenses may go up if the retiree plans to spend a considerable amount of time traveling. On the other hand, commuting and clothing expenses may decrease.
Seniors can create a detailed list of their living expenses and start eliminating expenses that they will no longer have upon retirement. This can help seniors have a clearer picture of how much their monthly living expenses will be upon retirement.
Future health care costs should also be anticipated. Although Medicare will cover majority of routine health care expenses, seniors should prepare to cover non-routine health care expenses.
Health care can be expensive for retirees. According to a report, a retired woman can expect to spend around $150,000 on health care expenses. Male retirees can expect to shell out around $130,000 on health care expenses. These are expenses not covered by Medicare.
An excellent way of protecting a retiree’s retirement nest egg is by purchasing long-term care insurance. Long-term care insurance can help cover expenses such as home health aides. The years prior to retirement are also the best years to buy such an insurance. Premiums will be lower compared to buying one during retirement.
Anticipating retirement living expenses also include planning where to spend one’s retirement. Living in an expensive neighborhood with a high cost of living can quickly deflate a retiree’s nest egg. Selling the house to move to a low-tax area can help reduce expenses. This is a great way of freeing money that can be spent on other priority items.
Moving to another state may not be feasible for some retirees. An alternative is to move to a smaller house in the same town. A smaller home is easier and cheaper to maintain. If this is still not feasible, seniors may need to make drastic lifestyle changes to ensure that they can still support the lifestyle that they’re used to.
Increase Your Cash Reserves
A person’s cash reserves are usually cash kept in a savings account or a checking account. It can also be money tied to a money market fund or money market account. Cash reserves can also come in the form of short-term treasury bills and certificates of deposit.
So, why is it important to have a healthy cash reserves before retiring?
Cash reserves are funds that are readily available to cover unplanned expenses. For retirees, unplanned expenses can be health issues not covered by Medicare or the cost of repairs for a car. Emergency house repairs are also unplanned expenses.
Seniors who doesn’t have a healthy cash reserves might find themselves in a sticky situation. Those without cash reserves might resort to the use of credit cards or loans. However, it is easy to accumulate credit card debt. With credit cards, the monthly interest for keeping a balance can pile up and result in a sizeable debt.
Although having cash reserves is important, knowing the right size of cash reserves is also critical. Having cash reserves that’s too large may also be unwise. Instead of keeping the money in cash reserves, seniors can invest excess cash into high-return investments. These investments can easily surpass the income generated by the interest rates of checking accounts.
An ideal cash reserve is enough to cover a person’s living expenses for two years. Aside from being enough to cover unplanned expenses, such cash reserves should be enough to allow seniors to ride out a bear market if they have investments.
Diversify your investments
Diversifying one’s investments is the practice of spreading one’s investments. This is a great way of limiting one’s exposure to just one type of asset. Diversification helps reduce the volatility of a senior’s portfolio.
One of the common issues with those who are approaching retirement age is the tendency to be too conservative with their investments. They fear that the risks involved in investing may be too great and that they might be left without enough retirement funds.
The problem with being too conservative in investing is the growth of the investment may not be enough. An investment with a sluggish growth may not be able to keep up with inflation. Seniors can end up investing their money without reaping rewards.
On the other hand, investing too aggressively leaves a person’s savings exposed to the volatile nature of the market. One wrong move and assets that one saved for retirement may erode. With retirement fast approaching, there might be fewer opportunities to recoup lost investments.
Diversification offers would-be-retirees a safe way to balance risks and rewards. Although diversification cannot guarantee profit or outright protection against losses, it can help insulate one’s investments from taking a fatal blow.
Diversification of one’s portfolio includes investing in domestic stocks, international stocks, bonds, and short-term investments. With a diversified portfolio, a retiree can take a loss on one investment while still reaping rewards on another. This provides the retiree with enough time to recover losses without going under.
Mental and Emotional Preparedness
Retirement is a transition to another phase of life that is completely different from what one is used to. This is especially true for those who have been working for the same company or doing the same job for decades. The change of phase can be disconcerting.
Mental preparations can help a person avoid loneliness, depression, or feelings of unfulfillment. Someretirees experience anxiety and debilitating feelings of loss. Having to stay at home during a work week can leave a retiree feeling unproductive.
Those who are nearing or about to retire can mentally prepare for retirement by:
- Visualizing what a retired life looks like. Five years before retiring, one should start visualizing what an ideal retired life looks like. Creating a bucket list of things to do during retirement can help a person have something to look forward to.
- Discuss retirement with the family. This is especially crucial for those who have a spouse. A person who is nearing retirement should discuss with the spouse what their retirement plans are. Couples sometime assume that they have the same dreams about retirement. This is not always the case.
A spouse may not be too keen with moving to another state. Or a partner may want to move someplace closer to the grandchildren instead of going on vacations and exploring exotic locations. An open discussion about retirement plans can help avoid conflict and disappointment.
Discussing retirement plans to a spouse or the entire family is also a great way of establishing a support group that can help a person seamlessly ease into retirement. A family that’s aware of one’s retirement plans is in a better position to provide the needed mental and emotional support when the date of retirement eventually comes.
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