Life's major milestones-graduations, births, weddings and cross-country moves-all require a certain amount of preparation.
Retirement is no different. That's why we believe it's important for people to meet with a financial adviser several years before they retire so you can jump right into the retired life once you're ready.
If you're thinking about retiring sometime in the next three years, we think you should do these three things.
Imagine your new lifestyle
When we meet with prospective clients, we'll typically ask them what their plans are for retirement. It's not uncommon for us to be greeted with a deer in the headlights look.
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They simply don't have an answer because they haven't thought about the specifics of their retirement.
Ask yourself what a perfect day, week and year in retirement look like for you. Doing this has a couple of key benefits. First, you'll be more accurate when estimating your retirement spending needs. Second, it will help you align your financial goals with your core values. Having a values-based plan helps you achieve an enriching, healthy and financially sustainable lifestyle in retirement.
Estimate your spending needs in retirement
One of the biggest-if not the biggest-fear people have about retiring is running out of money. It's an understandable concern, but it's ultimately a fear that can be assuaged with a bit of planning.
Understanding how much you need to save for retirement largely rests on what your spending needs are in retirement, and a large part of that estimate rests on what your retirement lifestyle is going to look like. Hobbies, vacations, housing costs and regular cost-of- living expenses all play into how much income you need to generate to meet your spending needs.
That estimate should also factor in unexpected costs. Health care expenses, home improvements or car repairs can wreak havoc on your retirement budget if you don't have a comprehensive plan in place.
Think about when (and how) you'll claim Social Security
Unless you're retiring after you reach your full retirement age, you'll probably want to avoid drawing Social Security benefits. The reason is that if you're under full retirement age and still working, income exceeding $16,920 will cause you to lose $1 of Social Security benefits for every $2 of income over the $16,920 earnings limit.
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For example, if you're under full retirement age and earn $19,920 ($3,000 over the earnings limit), your Social Security benefits would be reduced by $1,500. Things are a little less punitive during the year you reach full retirement age, as benefits are only reduced by $1 for every $3 you earn over an earnings limit of $44,880; once you reach your full retirement age, working will no longer negatively affect your Social Security benefits.
That doesn't mean Social Security is as easy as filing as soon as you retire. Sometimes that's the correct option, but sometimes it may make more sense to wait until you're 70 to file. When you factor in spousal benefits, survivor benefits and taxes on your Social Security benefits, the equation for determining the optimal method and timing of claiming benefits quickly becomes complex. Having a smart Social Security filing strategy has the potential of allowing you to claim tens of thousands of additional benefits during your lifetime than if you simply claim right at age 62.
That doesn't mean these are the only three things that you should do before you retire.
Rather, we believe that these three items are beneficial among all retirees as they help lay a strong foundation for your retirement.
