In the light of the pandemic and the recession, retiring in 2021 may seem more complicated than it did when you chose your retirement date years ago. But retiring comfortably this year is still possible, assuming you have worked out a solid financial plan that can help you for a few decades.
However, you can never be too careful in planning your retirement; therefore, before submitting your resignation, do the following three things to make sure you are financially ready.
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1. Review your retirement plan once again
Examine your retirement plan and make sure you have saved enough. Your retirement goals may have changed over the years, your investments may not have been as good as you expected or you may not have saved as much as you wanted at some point. These things can mean that you are not yet ready to retire, even if you are ready to stop working. It is best to know this from the beginning so that you can make adjustments, instead of trying to deal with the consequences later in your retirement.
Your retirement plan should include a rough estimate of how much you will spend each year. Make sure you are still satisfied with this value. If you’ve spent a lot more than that in the past few years, it may indicate that you’ll need a little more annually than you thought.
Consider how you plan to spend your retirement. Your expenses may decrease, but some people, especially those who plan to travel a lot, can spend almost the same or perhaps even a little more than they are used to, at least in the early years of retirement. Spending usually decreases as we get older and life slows down, unless you have major medical expenses.
If you are concerned about not having enough money, postpone retirement for a few months or years until you save enough. You can also try to contribute more each month between now and your planned retirement date, if you’re just a little out. Individuals under 50 can contribute up to $ 19,500 for a 401 (k) and $ 6,000 for an IRA in 2021, while anyone over 50 can contribute up to $ 26,000 and $ 7,000, respectively.
2. Think before starting Social Security
You must have a Social Security plan and now is the time to weigh all of your options. The age at which you start benefits has a significant impact on how much you will receive throughout your life.
You must wait until your full retirement age (FRA) to get all the benefits you are entitled to based on your work history. That’s 66 or 67 for today’s workers, depending on the year of birth. You can start at 62, but you will only get 70% of your programmed benefit by check if your FRA is 67 or 75% if it is 66.
You can also delay benefits after your FRA, and your checks will gradually increase to 70, when you will get 124% of your programmed benefit if your FRA is 67, or 132% if it is 66.
Deferring benefits until your FRA or beyond is usually the smart move if you expect to live in your 80s or older.
If applying for Social Security is the only way to retire this year and you are comfortable with the potential reduction in your lifetime benefits, it may be worth starting Social Security as soon as you retire. Otherwise, you may want to continue working until you have saved enough to cover your expenses for a few years without Social Security. Then, you can delay benefits until you qualify for larger checks.
3. Have a debt plan
It is difficult to predict how much debt you will carry for retirement if you are still decades away. This is especially true with high interest loans, such as credit card debt.
As you approach retirement, this is a little easier to discover. It is not impossible to retire with debt, but it can be risky. If you have a mortgage and you delay your payments, you could lose your home. Credit card debt that gets out of hand can end up costing more than expected and draining your savings more quickly.
Before you retire, take stock of your debts and plan to get rid of them, if possible. Try to pay high interest debts before retirement whenever possible. You can use a balance transfer credit card to temporarily stop the growth of your balance or take out a personal loan for a predictable and easier-to-manage payment on retirement.
Using your savings for retirement to pay off your debts may be possible, but you will have less money to see your retirement. Try to avoid using your retirement savings to pay off debts, if possible. Use whatever extra money you have or work a little harder to pay off your debt before retirement.
You are about to make the transition to a life on a fixed income and there is potential for everything to go very wrong if you have not planned it properly. If you don’t feel confident in your ability to retire comfortably now, go back to the drawing board and play with a few different scenarios to find out how much more time you have to work and how much you need to save to get the money you need.