A lifetime of work culminating with a single trigger – or so it seems. Even though you have spent years preparing, setting an actual retirement date can be terrifying. It doesn’t need to be.
Retirement is more than just a financial decision; it is also an emotional one. The best way to conquer this fear is understanding the risks you may face and having a plan to help manage them. I will focus on two concerns that top the list for many of us.
Replacing your paycheck is generally the top concern. Retirement is not free. You will need a certain amount of money to live on, which increases over time to keep up with inflation. The exact amount will fluctuate based on changing needs. Think of retirement years in stages.
You will likely spend more money in the early years of retirement – known as the “Go-Go years.” While still in good health, you will be eager to do the things you have dreamed of for years: traveling, attending concerts, taking classes, and starting a new hobby. These extras are in addition to your regular monthly living expenses.
Once you reach mid-retirement, during the “Slow-Go years,” you may reduce spending on the extras. You may not travel as much or do as many extra activities.
As retirement progresses, your needs change. You may experience an increase in health care needs, or need someone to help mow the lawn or clean the house. This period is known as the “No-Go years.” Getting out and about is harder than it used to be.
Planning for these stages and your changing income needs will help as you transition to retirement.
Having proper medical coverage is another concern retirees face. According to Fidelity Retiree Health Care Cost Estimate, a single person age 65 in 2023 may need approximately $157,500 saved to cover health care expenses in retirement. A married couple may need $315,000.
If you retire at 65 or older, the decision becomes which type of Medicare coverage you will choose. Will you go with traditional Medicare and get a Medigap policy to provide supplement coverage? Or will you go with a Medicare Advantage plan that will incorporate most of your needs under one policy? You may also need to purchase coverage for prescription drugs separately.
If you retire before age 65, you need coverage on an individual basis. Some employer plans have a cobra provision – allowing you to extend coverage for a specified period under the former employer’s plan. The premium is no longer subsidized by your employer. When the cobra period ends, you turn to the open market.
If you retire early, regardless of which option you choose, make sure your coverage is creditable. This will avoid any hiccups when you are ready to switch to Medicare. You also need to understand the trigger points for starting Medicare coverage – the windows for signing up are very specific. If you miss a window, you may find yourself without coverage or may incur costly penalties you will pay every year going forward.
You can feel confident as you transition to retirement by having a plan that you can rely on. Let our wealth management team help you create that plan, preparing for this life change and the challenges that may arise. It’s never too early to plan for a successful future!
Listen to a deep dive into this topic of retirement on our Power Up Wealth podcast.
