It used to be that retirement was a fixed age point but, in the last couple of decades, that has changed and many people now retire over a longer period of time and many don’t retire completely.
Analysts these days have coined a new phrase, the “retirement red zone”, which is the five years before someone’s full retirement starts. In these five years leading up to quitting your job completely, there are certain things that you can do to get ready and make preparations so that, once that weekly paycheck isn’t coming in anymore, you’ll be sent to handle it.
The first thing that should be done, and as soon as possible, is to create a financial plan and learn how to budget as well. The value of learning how to budget and having a plan is enormous and will help you to see where you are financially as well as give you an idea of where you need to be. This will obviously help you to see if you’re on the right track to getting there in the next five years. It will also answer the all-important question “can I afford to retire?”
Next is lining up a number of different retirement income sources. One of them will be your Social Security checks but you’d be very wise to not rely on them entirely. Anything you can do to monetize your skills and set up residual income streams now is an excellent idea and will help to pad your income during retirement.
Another is simply to maximize your 401(k), if you have one through your employer, and take full advantage of any matching program that they might have. Keep in mind that there are “catch-up” provisions that you can take advantage of as well and don’t leave any valuable retirement money on the table. In most cases you can contribution up to $5500 more using this one provision if you are 50 years old or older.
If you plan on retiring before you hit 65 you need to keep in mind that you won’t be eligible for Medicare and thus make sure that your health insurance is paid in full and any health care plan that you have through your work will continue to cover you during retirement. After 65 Medicare will be your primary insurer if you had an employer plan and your company might pick up some of the costs, but not always, so definitely check to be sure.
Remember also that Medicare, unfortunately, does not cover long-term care costs and be sure to have a strategy to take care of those if necessary. Considering that one out of two people will need some type of long-term care costs in their lifetime, having long-term care insurance is a very good idea. The fact is, healthcare costs usually increase towards the end of your retirement, which also happens to coincide with the end of your life, and you really need to be prepared for this as much as possible in order to not burden your family with the stress of huge health care bills.
Finally and most importantly you should do your best to pay off your debt before you retire. The unfortunate fact is that over half of all American workers are now going into retirement with debt, including mortgage debt on their homes. Credit cards and auto loans are also high on the list and, if you have an overly large amount of debt, paying it down now is vitally important.
Do these things in the years before you retire and you’ll find that you have a lot less stress, and fewer financial problems, once you get there.