Pre-Retirement Planning

There are those who never plan to retire (a mistake), and there are those who plan on working part-time in retirement (an oxymoronic phrase in my mind), and of course there are those, like me, who embrace the traditional definition of retirement. That traditional view means you want to walk away completely from the workforce at a specific point in time. To do so, there are specific actions you should take at various points on the road to retirement.

The last phase, prior to pulling the plug on your working years, might be described as the pre-retirement phase, which I would suggest is two to three years before your desired retirement date. During this phase, there are at least five actions you should take to ensure you successfully launch yourself into retirement.

Get Your Debt Under Control

Among the most serious threats to a satisfying retirement is debt. That debt often comes in three primary forms: credit cards, mortgages, and student loans. Yes, as hard as it might be to believe, numerous studies suggest lots of older workers are retiring, or attempting to retire, while still carrying debt from student loans.

Desktop - Bills

Carrying debt into retirement means your ability to engage in desirable activities will be negatively impacted. Moreover, debt is a constant source of stress, and in particular, chronic stress, for many people, particularly for those in retirement. While it isn’t absolutely necessary to be completely debt free – my mother has a small mortgage and is doing quite well – it is preferred and if not completely debt free, you should have it firmly under control.

Know Your Social Security Benefits

This is likely the most important decision you will have to make. It’s certainly one of the more complex, especially for married people. Unfortunately, figuring out the optimal time to collect benefits is impossible because nobody can predict how long they’ll live.

My SSA AccountThere are two definitive actions you can take with respect to determining when to collect benefits. First, sign up for a ‘my’ Social Security account and download your statement. This statement will give projections for Social Security benefits at various ages based on your lifetime earnings.

Second, based on those various projections, you will need to determine when the optimal time is for you to take your benefits when you consider the amount available at the various ages combined with other sources (e.g. 401(k), TSP, savings, annuities, etc.) of retirement income. In general, you want to delay taking the Social Security benefits for as long as possible if you are able to draw your desired retirement income from other sources.

Fully Fund Your Emergency Savings

Yep, this fund will still be needed in retirement. The ability to over your basic monthly expenses in retirement isn’t enough. Just like during your working years, this cash account is used in the event of an emergency, to fill critical financial gaps, or meet unexpected expenses. Maintaining such as fund ensures you won’t fall into a situation where you have to rely on credit cards and get sucked back into the debt trap … not a good place to be, particularly in retirement when getting back into the workforce may not be an option.

Verify Your Health Insurance

For many retirees, healthcare costs will be the single largest expense in retirement. The best way to mitigate those expenses – along with paying close attention to your diet and exercising –  is to make sure your health insurance is addressed. If you retire before age 65 – a boat I will be in because I plan to retire at age 60 – you will need to find another source of health insurance until you qualify for Medicare. Options might include your state’s health insurance exchange or your former employer.

Medical Center - Prisma Tears

It’s critical to sign up for Medicare as soon as you are eligible. The experts suggest you start submitting the Medicare paperwork three months before age 65 because there are penalties if you sign up later. Additionally, take a look at Medicare’s premiums, deductibles, co-pays, and co-insurance so you can get an idea of how much you will need to pay out-of-pocket.

Verify Your Workplace Benefits

Touch bases with your human resources department to determine which workplace retirement benefits, if any, will carry over into retirement. If you are eligible for a traditional retirement benefit plan (pension) you likely have some idea what the formula is and what your benefit will be.  As an example, my employer uses the following formula for those who retire before age 62: 1% × High-3 Average Pay × Years Service. This is how it would look for someone who worked 30 years, 4 months (4/12 years or 30.33) when their highest three years – typically the final three – of salary averaged $80,000 … .01 × 75,000 × 30.33 = $22,747.50.

You would hate to think you know what your benefits are only to find out just before – or even worse, just after you enter retirement – that your benefits are different than what your plan assumed.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

4 Comments

  1. James – a great article. We’re 2 years from an Age 55 retirement, and have done everything on your checklist except detailed health insurance planning. I’ve “plugged” $1500/month into our post-retirement spending plan, and will have to plug my nose and make a plan choice when we get closer to our 2018 date. Full retirement is the plan. Looking forward to knowing we’ll likely never have to work again for money! Thx for your blog – we’re kindred souls!

    • It sounds as if you are on your way to a satisfying retirement, my friend. “Full retirement is the plan.” Indeed. Nothing less will do!

  2. Since I’ve left full-time work, I won’t have any workplace benefits. Healthcare is definitely something we have to keep a close eye on. We are covered by my husband’s policy for the next 7 years (until he reaches 65) but then he will go on Medicare and I will need to get my own insurance for 8 years until I reach 65. It is hard to think about what the health care system might look like (and cost) by that point. This is an area that I need to continue to learn about!

    • No doubt that you and your husband will be well served to explore your healthcare options since it is such a significant expense for retirees … more so than most realize.

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