You do yourself (and your family) a favor by making sure your finances are in order before retiring.
The window is closing fast on 2023. For some, a new year means a new lifestyle as they prepare to retire and enjoy what life offers beyond a nine-to-five.
It’s a tremendous, life-altering change, so it can be stressful if you’re unprepared. If you plan to retire in 2024, ensure you can at least answer these five important questions.
1. Are all income streams and investments accounted for?
People spend most of their lives saving for retirement, a process commonly occurring behind the scenes. Your 401(k) contributions are likely taken directly from your paycheck before you even see the money hit your bank account. But retirement savings enter the spotlight as you near your last working days.
Now is the time to tally all your potential income streams during retirement. Get informed on your 401(k) or other primary retirement account. Make sure you haven’t missed any old accounts from former jobs you may have forgotten about. Know your status for Social Security benefits if you’re eligible. Know where your income is because your paychecks will soon stop.
2. Have you budgeted for your lifestyle?
Knowing your income is only half the battle. Your expenses are arguably more important. People spend their entire working lives living a lifestyle that may or may not fit their retirement budget. If your retirement savings aren’t large enough, you may be downsizing.
Make a budget if you don’t have one already, and analyze it line by line. Do you need two vehicles if you’re no longer commuting to a job? Is your home too big now that you’re an empty nester? The bottom line is to make sure you’re on top of where your money goes so that you’re using your retirement savings as efficiently as possible.
3. How much debt do you have?
Debt can cripple a retirement budget. While many people take a mortgage payment into retirement, non-secured debt, such as credit card debt, carries very high interest rates that can put borrowers in a financial pit of despair.
If you’re retiring soon and are holding onto credit card debt or personal loans, consider focusing your budget there first to pay them off before retirement day arrives.
4. Do you have an emergency fund?
People want peace in retirement; few things can help you sleep well at night like an emergency fund can. An emergency fund is an easily accessible sum of money that’s dedicated to unexpected expenses. For example, maybe your car blows its transmission, or a water pipe bursts in your bathroom. Perhaps it’s the healthcare expenses you didn’t know you’d have.
Having $1,000 is a common starting point for an emergency fund, but you should try to set aside several months of living expenses.
5. Is estate planning done?
It’s not fun facing the grim reality that everyone eventually passes on. However, the majority of Americans die without a last will and testament or other sufficient estate plans in place. These plans are crucial because they dictate how your assets are dispersed when you pass.
Dying without a plan can create a stressful situation for loved ones who must rely on the courts and the laws where they live to proceed. Even if you verbally gave instructions before passing, a written will is the best way to ensure a smooth transition for your friends and family.
