You’ve dreamed about it. You’ve planned for it. But now that retirement is approaching, you might be asking yourself – “Am I ready for it?” In our research here at AgingOptions, we come across a wide range of articles on the topic of retirement readiness, most recently this one from the current edition of USNews. “It can be tough for working Americans to determine when to transition into retirement,” writes contributing reporter Rachel Hartman. “There are several financial red flags that signal when stepping away from work might not be the best option.” In other words, if you haven’t addressed the “red flags,” you’re not ready to retire.
These Warning Signs Are Helpful, But There’s More to the Story
We’ll cover Hartman’s eight warning signs in a moment, but before we do, remember this reminder from Rajiv Nagaich: “A financial plan and a retirement plan are not the same!” Even if your finances are sound and (on paper) you’re “ready to retire,” there’s a great deal more to consider than saving, spending, and investing. As you go over this list from USNews, bear in mind that money is only part of the retirement planning story. Keep reading and we’ll tell you more.
The problem of gauging pre-retirement financial preparedness is very real. “Among Americans who have retired, one in four felt they were not well prepared financially to step away from work,” Hartman writes, quoting a 2019 AP survey. That statistic strikes us as overly optimistic. Other reports, including this one from the Senior Financial Advisor website, tell us that one-fifth of baby boomers have no retirement savings at all, while another one-third have saved $25,000 or less – so financial preparedness for retirement seems to be sorely lacking. With those bleak statistics in mind, let’s take a look at the USNews list of warning signs. We’ve re-written them into questions you can ask yourself to measure your financial retirement readiness.
Warning Sign #1: Am I Carrying A High Debt Load?
It’s clear that debt puts a strain on the budget, and the pain is far more severe for retirees on fixed income. This 2018 report from the National Council on Aging said that the number of Americans 65 and older with debt jumped 50 percent between 1992 and 2016. In 1992 median debt for this group was just $6,000, but by 2016 it had exceeded $31,000. USNews advises tackling your debt before you retire: it will enhance your lifestyle and your peace of mind.
Warning Sign #2: Do I Have a Retirement Spending Plan?
“If you don’t know the amount you’ll need for living expenses in retirement, it is difficult to estimate how much of a nest egg you’ll need,” Hartman writes. An accurate budget is an absolute essential. “Once you’ve laid out a monthly budget, you can compare it to your investments and savings to see whether you have enough set aside to retire.” Remember to be as comprehensive as you can, and when in doubt, estimate expenses on the high side to avoid surprises. It’s imperative that you update your budget frequently as circumstances change.
Warning Sign #3: Have I Remembered to Budget for Healthcare Expenses?
If you’re retiring before reaching Medicare eligibility at age 65, you’ll need to replace your employer’s health insurance with your own. (A tip: before y0u plan on paying for that health insurance out of your own pocket through COBRA benefits, brace yourself. The premium may come as a shock.) Once you’re 65, the challenge of paying for health insurance doesn’t go away. “Medicare doesn’t cover all medical expenses, so you’ll want to factor health costs into your retirement budget,” says USNews – which means premiums, copays, dental and eye care, and a host of other expenses that may not be covered by your insurance.
Warning Sign #4: Am I Relying Too Heavily on Social Security?
“You can create a my Social Security account and get an estimate of the Social Security benefits you can expect to receive in retirement,” based on your work history and income, USNews advises. When you do, you may find that those benefits won’t support the lifestyle you had planned. Social Security is vitally important to the majority of U.S. retirees, but you’ll need to be honest about augmenting your Social Security income. And it’s likely that at least part of your benefits will be taxable.
Warning Sign #5: Am I Retiring with No Plan to Pay Off My Mortgage?
The same National Council on Aging website cited above reports that, as of 2016, nearly 30 percent of households headed by a senior adult owed money on a mortgage, home equity line of credit, or both. Of these households, the median money owed was $68,500. “A mortgage, as a recurring payment you’ll face every month, will likely be your largest and most consistent expense,” one financial planner told USNews. “Until you have a plan for how you can handle your largest expense in retirement, it’s not time to retire yet.”
Warning Sign #6: Do I Have a Sound Investment Strategy?
You may have some money set aside in 401(k), an IRA, a mutual fund, or even real estate, but until you understand how the various pieces fit together, you may be paying the price – literally – in higher taxes and lower income. “A collection of retirement savings is not a plan,” says another financial planner in the USNews article. “They are merely a series of financial products that you happen to own, and this doesn’t guarantee retirement success.” The advice: Sit down with a qualified financial advisor to create an income plan for your retirement years.
Warning Sign #7: Am I Still Supporting My Kids?
If you still have children at home or in college, or if you’re supporting your adult kids as many boomers do, you may need to delay retirement. “Retirement should be about you and being comfortable enough not to have to scrimp and worry about your children,” says USNews. “You may decide to wait a few years until your children are living on their own to retire.”
Warning Sign #8: Have I Overlooked Unanticipated Expenses?
“Even with a crafted retirement plan, the unexpected could surface during retirement,” the article warns. Illnesses, accidents, home repairs, and the unexpected needs of family members are always lurking in the shadows to derail your plan. Many planners recommend setting aside a liquid emergency fund that can be easily accessed for unexpected costs. Just make certain you only tap into it for true emergencies.
You Need Two Things: A Financial Dashboard and a LifePlan
As we said, there’s more to retirement than money. Here’s our two-pronged solution, based on interaction with thousands of clients. First, the way to get your finances truly in order – whatever phase of life you’re in – is with a financial dashboard. Contact us and we’ll explain this simple yet profound concept, and we’ll gladly refer you to a trusted financial adviser who will guide you. Second, if you want to discover the rest of the retirement planning story, join Rajiv Nagaich for a free LifePlanning Seminar. He’ll open your eyes to an exciting approach that blends your finances with all the other essential elements of a comprehensive retirement plan.
(originally reported at https://money.usnews.com)