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  • Preparing for Retirement?

  • Do you find yourself dreaming about all the things you’ll be doing when you stop working? If you do, then you’re probably in retirement mode. However, being mentally ready to retire is only half the battle. You also need to be financially ready to make the transition from a steady paycheck to depending upon assets to pay your bills.

    Answering the following six questions will help you decide if you’re financially ready to take the plunge:

    1. Do you have predictable income?
      Be sure you are fully vested in your company pension plan, and that you are eligible for withdrawals from your 401(k). These are revenue streams you can depend on to cover your expenses. These sources will also allow you to take a little more risk in terms of continuing to grow your investment assets. If you are 62, you can collect Social Security; but if you can delay using those benefits until age 70, you will increase your benefit amount between 7% and 8% for each year you delay.
    2. If you don’t have a company pension, is there a source of readily available cash to meet expenses?
      Having liquid assets that you can easily tap means you can retire now. The goal is to have enough money for three years’ worth of expenses in an account where there is no risk to the principal. However, if you need to sell assets to create income to live on, then you aren’t retirement ready.
    3. Do you have enough diversity to maximize your assets?
      You should have saved enough money to be able to withdraw between 4% to 5% each year to provide for your needs. If you have to use your retirement investments to pay your bills during an economic downturn, it will significantly reduce the number of years that your assets will last, possibly causing you to outlive your resources.
    4. What kind of Health coverage do you have?
      Gone are the days when you could rely on company-subsidized Health insurance when you retired. If you retire before age 65, you’re not eligible for Medicare, so you’ll need to find another source of Health insurance. If your spouse is still working, you can get coverage under their plan. Another alternative is to get COBRA coverage through your former employer for up to 18 months, but you will pay the full premium, which can be high. Finally, you can purchase a policy directly from an insurer, but keep in mind that your age, and health will affect what you pay.
    5. What’s your Plan B?
      Circumstances like an extended illness can force you to lower your standard of living. Decide the minimum level of income that you really need to live comfortably. Then create a two-column budget. In one column, list fixed expenses like food and housing, and in the other, list discretionary spending like entertainment and vacations. If you are experiencing a cash flow problem, you can cut items from your second column to free up needed cash.
    6. Could you delay retiring by taking on a different job?
      You might be emotionally ready to leave this job, but would changing jobs, or even careers, give you the drive to work even just a year longer? If you stay employed for one extra year, it gives your retirement savings more time to accrue, keeps you from tapping into your resources, shortens the time you need to depend upon your assets to live, and increases your Social Security benefit amount for life. And many jobs also provide Health insurance, delaying the problem of having to pay for your own coverage.

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