4 How Should I Prepare to Retire?
Henry and his wife had been talking about retirement off and on over the past few years as if retirement was still a long way away. Then, suddenly, they realized that they might be retiring as soon as in the next year or two and almost surely no more than in the next three to five years. That was when it hit Henry that they hadn’t yet really done much if at all to prepare for retirement. Oh, they’d been slipping retirement funds away for many years. But they hadn’t done any serious budgeting. Nor had they figured out their Social Security, Medicare, or supplemental health insurance, or what they wanted to do for housing in the warmer climate where they planned to retire. All that Henry knew was that the time was upon them to prepare.
Preparation
Quips about preparation highlight its appropriateness. Benjamin Franklin held that “by failing to prepare, you prepare to fail.” Sun Tzu held that “every battle is won before it is fought.” Christ said to count the cost before building a tower or going to war. Retirement may not be a battle to wage or war to win, but retirement is definitely something significant for which to prepare, if you want to be able to call your retirement a success. Indeed, with retirement, preparation may be nine tenths of success, at least in the early going. And a good start to retirement can increase your chances of having a good finish. What happens with your health, finances, family relationships, housing, and activities in the early years of retirement, when you are strongest and most active, sets the tone for what happens later in retirement, when your pace naturally slows down. This chapter outlines the main steps to take to prepare for retirement, while following chapters address these main retirement issues in greater detail.
Savings
Because saving for retirement can take a long time, even much of one’s adult worklife, retirement savings are generally the first thing that one thinks about when the subject turns to preparing for retirement. You can’t flip a switch the day before you retire, to call yourself prepared with retirement savings. Retirement expenses can take too much of a nest egg to build in less than several years, even over a good couple of decades. The earlier you start, the better, especially when reinvesting the earnings on retirement savings. If you start early enough, the question becomes less how much you set aside and more how much your retirement savings earn. Retirement savings can grow by large multiples, even ten or twenty times over, if you start early in your adult worklife. Thus, funding your retirement, the subject of the next chapter, is generally the first thing for which you should begin to prepare.
Income
While retirement savings are generally a big piece of preparing for retirement, preparing for retirement income can be another helpful step. Retirement income generally begins with Social Security, determined not only by your number of years of employment and compensation rate each year, but also by how long you wait to begin receiving it. If you prepare well for retirement, you may be able to hold off on starting Social Security, so that your payments are larger when you do begin your retirement benefits. Retirement income could, though, also include work pensions you earned, annuities you purchased, payments from the sale of a business or other assets, and gifts or bequests from relatives, along with the earnings on your retirement savings. You may also decide to continue some work in retirement, earning additional income. You can, in other words, plan and prepare for income during retirement. Subsequent chapters on retirement savings and retirement budgets address these options again.
Budget
The temptation when thinking about retirement savings and retirement income is to assume that more is always better. But that’s not necessarily the case. When you set aside savings for retirement, you are not spending those savings on other things that you and your family might want or need. Likewise, when you arrange for retirement income, whether for instance by purchasing an annuity, taking a job where you can earn a pension, or planning to work part time during retirement, you are giving up other things to make those arrangements. Better, then, to examine your retirement budget. A budget refers to the expenses that you expect and the income you’ll therefore need. You may not have to sacrifice so much today to fund your future retirement, if instead you make a few wise plans and preparations for where and how you’ll live in retirement, within a more-reasonable budget. Make projecting your retirement budget a part of your plans and preparations, as a later chapter further addresses.
Health
Your health in retirement will go a long way toward determining how much you do in retirement, what you do, and how much you enjoy it. You can’t entirely plan for good health, given the vagaries of disease and other health conditions. But you may be able to influence and prepare for good health. Your exercise, diet, nutrition, and medical care today may heavily influence your health in retirement. Addressing chronic and acute health issues now may restore your good health and preserve your good health well into retirement. You should also be planning and preparing to qualify for Medicare and to purchase supplemental health insurance, to ensure your access to medical care and other services during your retirement. Plans and preparations that you make today for where you live and how you live in retirement, relative to a healthy lifestyle, can also heavily influence your good health in retirement. Don’t ignore your health when planning and preparing for retirement, as a later chapter further addresses.
Family
Your family relationships can be a big consideration in retirement plans and preparations. Your family structure and relationships may influence when you retire, where you retire, and what you plan and prepare to do in retirement. Retirees often plan to move closer to family members, especially adult children and grandchildren, both to be involved in their lives and to receive their love, care, and attention. Retirees who would like to move to a special location may likewise decide not to do so, so that they may instead remain close to family members. Work typically ties you down to a single location. With retirement comes freedom from work’s location restriction. If your adult children and grandchildren live far away, you may wish to move near them once retirement allows it. You may alternatively make changes to your housing to accommodate more or fewer family members. Preparing to preserve or improve proximity to family can be a significant part of your retirement planning, as a later chapter further addresses.
Housing
Housing needs and preferences, including the location of the housing, can also change between working and retirement, requiring additional planning and preparation. If you plan to downsize at retirement to reduce housing costs and free up additional retirement savings, then you may need to repair your home to prepare it for sale and may need to engage a real estate agent. You may also need to select and secure your new housing. The same would be true if you are relocating in retirement, for instance moving from city to country, country to city, or city to city. Many retirees have special plans for different housing, more suited to their ideal retirement lifestyle, whether simplifying to reduce maintenance costs and activities, enriching to create gardening, farming, pet, livestock, or other outdoor activity opportunities, or moving to a city cultural center for the arts and entertainment. Vehicle needs and preferences may simultaneously change in retirement, requiring further planning and preparation. Don’t overlook housing and transportation in your retirement preparation, as later chapters address in greater detail.
Activities
Also make preparing for retirement activities a part of your retirement planning. You may, for instance, be waiting for retirement to travel extensively, work commitments having prevented you from undertaking your long-planned grand adventures. Extensive retirement travel may require or benefit from making early reservations as much as a year or more out, setting aside special travel funds, and obtaining passports and visas, among other early preparations. Depending on the extent of your travel commitments, you may also wish to prepare for changes in your housing, such as renting or selling your own home in favor of temporary quarters abroad or a motorhome or other traveling quarters. If travel isn’t in your retirement plans, you may have other retirement activities planned that would benefit from some preparation. Playing more golf in retirement, for instance, may benefit from a move or memberships. Hunting, fishing, and hiking plans may benefit from equipment and permit purchases, guide reservations, and fitness training. Include retirement activities in your preparations. See later chapters addressing retirement travel and activities in greater detail.
Community
Maintaining and enhancing your community connections in retirement can be especially important, taking some planning and preparation. Social activity and a sense of belonging are among the most-important factors in maintaining good health and outlook in retirement. Retirees often immediately lose their workplace community, when work friendships may have composed the largest part of their social life. If you don’t have a plan for replacing workplace relationships with other healthy, positive friendships, you may find yourself suddenly isolated in retirement. Preparation may involve planning a move into a retirement community or other location where social interaction is readily available and common. Preparation may alternatively involve joining a book club, church, band, volunteer group, or other groups where you meet and interact regularly with others sharing your interests and who know and care about you. Make preparing to preserve and enhance community a part of your retirement planning and preparation, as a later chapter addresses in greater detail.
Disability
Give some thought and preparation, too, to your potential decline and disability or the decline and disability of your spouse or other elderly family members in retirement. You may be in great health and, in your view, years away from any significant loss of abilities that might affect your independence. Even so, you may find that in planning your retirement housing, you can address some potential access issues, whether in home choice, amenities, design, or location, or home renovations. You may likewise find that decisions you make about your proximity to family members may affect your ability to remain independent, with their assistance. You may also wish to fund nursing care well in advance of its need, through an insurance plan. Planning and preparing for an active retirement can be great fun. Planning and preparing for a physical or mental decline in retirement may not be such great fun but can make the onset of disability far less disruptive. See a later chapter addressing this issue in greater detail.
Legacy
Make legacy planning a part of your retirement preparations. You should have had a will and healthcare powers of attorney well before retirement, in the event of your sudden mental incompetence or sudden demise. As you age into retirement, your likelihood of such events increases, even if only bit by bit, from year to year. You act responsibly toward yourself, your spouse or other dependent family members, and your intended heirs when you have an estate plan in place, typically involving a will and perhaps a trust or even a family foundation. Don’t wait until you are well into retirement to prepare your estate plan. Get that big legal housekeeping matter out of the way before you retire, to relieve yourself of the issue when you would rather be enjoying retirement. You might even wish to address memorial and burial plans, and other legacy issues, before retirement for the same reason. See the guide Help with Your Legacy and the later chapter in this guide on the same subject.
Team
As already indicated once in a prior chapter, your retirement can benefit from having a strong team of professionals around you. Before retirement is a good time to put that team into place. When you retire, you will want to focus on the good times, whether involving your spouse, other family members, friends, or retirement travel, studies, activities, or community. Several of the above retirement issues, including finances, insurance, housing, disability, and legacy, require or benefit from the assistance of skilled professionals, including financial advisors, lawyers, doctors, insurance agents, travel agents, and even funeral directors. Don’t let your retirement turn into an administrative burden, searching for the professional representation that you need. Instead, build your retirement team before you retire, as part of your retirement planning and preparation. See the later chapter addressing this subject in greater detail.
Reflection
On a scale from one to ten, how prepared do you feel for retirement? For which of the above subjects do you feel most and least prepared? In other words, where do you need to play catch up and where are you already ahead? Are your retirement savings where they should be? Do you know what retirement income you can reasonably expect? How do your savings and retirement income fit with your retirement budget? Are you taking steps now to make your health the best it can be in retirement? What are your hopes and plans for family relationships in retirement? Do you need or want to plan and prepare for changes in your housing in retirement? What retirement activities can you plan and prepare for now, to be sure that you get to enjoy them? What will be your retirement community, where you can expect regular positive social interaction with friends having similar interests? Have you given any thought to your decline and potential disability in retirement, and how you might prepare for it now? Do you have a will and healthcare power of attorney in place? Do you have a team of professionals to help you with retirement issues?
Key Points
Preparing for retirement involves addressing several major issues.
Retirement savings are a first issue to address early in preparations.
You may also be able to prepare for retirement income beyond savings.
Planning a retirement budget can also help you prepare to retire.
Taking steps regarding your health can also help you enjoy retirement.
Consider how you want retirement to support family relationships.
Planning for your housing in retirement can be a big helpful step.
Preparing to enjoy retirement activities can also make it enjoyable.
Also consider how to enhance your sense of community in retirement.
A little thinking of potential decline and disability can aid retirement.
Make legacy planning a part of your retirement preparations.
Put your retirement team of professionals in place before retirement.