It's very common these days to overhear a dinner conversation that starts with the words "When I retire..." often followed by words like "travel, golf and RV". With a United States population over age 65 that currently numbers 36.3 million and is expected to increase to 55 million by the year 2020, retirement will be an increasingly popular topic.
But are you ready to retire? Even if you've done nothing up until now, careful planning in the 5 years before your planned retirement date can give you security and peace of mind. Here's how to get started.
Run the Numbers
The first thing you should do is check with your employer to see what your retirement income really will be. Most companies have one of two different pension plans. The most common has been a defined benefit plan system which promises the participant a specific monthly benefit at retirement and will be stated as an exact dollar amount or calculated through a formula which considers a participant's salary and service.
More recently, companies are moving toward a defined contribution plan in the form of an individual account for each participant. The benefits are based on the amount contributed and are also affected by income, expenses, gains and loses.
Some examples of defined contribution plans include 401(K) plans, 403(b) plans, employee stock ownership plans and profit sharing plans. As these are portable and move with you if you change your jobs, defined contribution plans are becoming more popular. The downside to these is that they are more difficult to fund later in life and are as you are in charge of making the investment, it is riskier for the individual. Check now to see what you have at your job.
Secondly, read your Social Security statement (Form 7005 should be mailed to you 3 months prior to your birthday each year) to see what benefits you are entitled to receive and check in to Medicare and other government health programs.
If you choose not to begin receiving Social Security benefits at age 65, you will need to register for Medicare during the initial enrollment period which is 3 months prior to your 65th birthday and 4 months after. Remember that the age to receive full Social Security benefits will be increasing in the coming years and you may have to make changes based on these new ages. Once again, check with your local office or www.ssa.gov.
Lastly, decide how much you will need in retirement to facilitate the lifestyle you have chosen. If you are planning on staying in your current home and you have no mortgage or expensive hobbies, 70 percent of your pre-retirement income should be adequate to maintain your current lifestyle. However, if you plan to travel constantly or have a lot of debt, you may require 110 percent of your pre-retirement income. It's smart to estimate beforehand how much you will need.
Talk it over
Second, think about legal matters. There are a few documents that everyone should have including a will or a trust, a medical power of attorney (also known as a living will or advanced health care directive) and a durable power of attorney for finances. These documents will help protect and preserve your assets and assist health care professionals in an emergency. Check with an attorney and your physician to determine the documents that are right for you.
Third, talk to your children and other relatives about your future plans and let them know what you have accomplished. Younger people may find this conversation difficult, but in a recent study, older people felt better after getting things out in the open. In an emergency, the time spent discussing your wishes and your plans will be invaluable. Taking time to document your medical history, assets and liabilities can also provide peace of mind.
These tasks may seem overwhelming if you think of them as a whole, but broken down they can be accomplished and even if you don't complete them all, the ones that you have done will be helpful. It's never too late to come out ahead.
The opinions expressed in this article are of the author and the author alone. They do not reflect the opinions of SheKnows, LLC or any of its affiliates and they have not been reviewed by an expert in a related field or any member of the SheKnows editorial staff for accuracy, balance or objectivity. Content and other information presented on the Site are not a substitute for professional advice, counseling, diagnosis, or treatment. Never delay or disregard seeking professional medical or mental health advice from your physician or other qualified health provider because of something you have read on SheKnows. SheKnows does not endorse any specific product, service or treatment.