How to Prepare Your Personal Finances Before You Retire
Preparation for retirement is an essential part of securing your financial future. This is because along with retirement comes changes: although you may have paid off loans and mortgages, your income may fall and your spending pattern is likely to change. It is important to take the necessary steps to address these anticipated changes in order to retire well.
To enjoy your retirement years, here are some things to put in order sooner rather than later.
Know Your Income
You need to figure out how much income you will have coming in once you retire, and the source of the income. This may include pensions, social security and so on. Working out how much you are likely to have also involves adding up your savings, investments and assets. This is important because it helps you know your net worth, project what it would be at retirement and helps you consider ways to boost your pension.
Prepare a Budget
This is an important part of preparing your finances before retirement, and the next logical step after knowing your income. To live comfortably when you retire, preparing a budget helps you live within your expected level of income. As your financial situation is expected to change, you need to plan adequately and budget for any major future spending. You may have unexpected expenses, or want to take on an expensive hobby. What ever it is you want to do, it is advisable to spend less when you retire than you did while working. This means that you should prepare in advance so that you have greater control over your situation.
Pay Off Debts Before Retirement
There is the likelihood that your income will drop when you retire. Of course, there are exceptions: you may have an alternative source of income, you may start up a lucrative business or continue working, part-time. Even in these instances, you may not generate income as high or as predictable as your steady pre-retirement income. As such it is best you start your retirement as debt-free as possible. It is advisable to add up how much you owe, and first pay off the debt with the highest interest rate, so that it does not accumulate for much longer.
Consider Health Insurance and Retirement Benefits
Before you retire, you should consider your options when it comes to health insurance and other benefits. If these would be provided by your employer, what are the policies they operate by and can you structure yours differently? You may also want to look into long-term care insurance, or advance funeral planning services, to save money in the long run. Additionally, you may want to look into when to apply for social security. Some people wait a while and delay collecting their social security benefits so that they have a larger monthly pay out.
