Many of us believe that retirement promises a life of ease, free of responsibility. And in a way that's true . . . at least in my opinion. We no longer have to show up for work, deal with uncooperative colleagues, manage self-absorbed employees or report to narcissistic bosses. We no longer have to bear the weight of important projects, demanding clients or needy patients.
But there is one area where we do take on more responsibility: In retirement, we are in charge of our own lives and our own futures. We no longer have a boss who tells us what to do . . . or a paycheck automatically deposited into our bank account. With the demise of the traditional pension (meaning, I don't have one), we shoulder more responsibility for our financial lives. And with increasing lifespans, we need to plan for longer and hopefully more rewarding futures.
Whether you're a younger person planning for retirement, or like me already there, here are some questions we should ask ourselves to prepare for the rest of our lives.
1. Do we have a reasonably accurate estimate of our retirement income? Most of us begin with Social Security, which pays out $1,360 per month for the average retiree, but can offer better than $3,000 a month for high earners who wait past full retirement age to start collecting benefits. But Social Security is only a start. Most of us add to that income with a pension, or else IRA withdrawals, or possibly income from a rental property or the proceeds from a retirement job. Whatever our situation, we need to know how we're going to replace our paycheck – or at least most of it – after we stop working.
2. How will taxes impact our income? I should have known this -- but of course I hadn't paid much attention. Withdrawals from traditional IRAs and 401(k) plans are subject to federal income tax and possibly state tax as well. Social Security is partially taxable above certain income thresholds. Retirement income is similar to earned income in that our take-home pay is usually much less than our gross income.
3. Should I hire a financial adviser? Some people are do-it-yourselfers, which is fine if you're organized and comfortable with numbers. But our financial lives can sometimes be complicated, and so we shouldn't be afraid to admit that we might not have the best answers and could use some professional help. (I have an appointment with a financial adviser scheduled for the end of August.)
4. Have you calculated your life expectancy? This may not be a pleasant task, but it makes a big difference whether you're planning for 10 years of retirement or 30 years. And our life expectancy may be longer than we think -- as B keeps reminding me. Her mother just turned 101 years old; so B is planning to live to at least 100. In fact, even us more average 65-year-olds can expect to live into our 80s, while over 20 percent of men and 30 percent of women will live into their 90s. And the longer we live, of course, the more money we need.
5. Do we have health insurance? Most of us qualify for Medicare at age 65. (Don't forget to apply!) If you retire early, you need to make sure you are covered at least for a catastrophic event. And Medicare alone is not enough coverage. Do your homework and make sure you have an appropriate supplemental plan for your health needs, which may cost more or less than the old plan from work. (For me, Medicare is less than what I used to pay; for B it is more, since she used to enjoy a heavily-subsidized medical plan through her town employment.) Our needs may also change as we get older. So we shouldn't pick a plan when we're 65 and forget about it. We need to review periodically and make changes as needed.
6. Have you prepared health directives and estate documents? It's difficult to think about this unpleasant task. (B and I have thought about it; so far we haven't done anything except we both have wills written 15 years ago, before we met.) But we want to have our papers in place, not just for our own comfort, but also to put our loved ones at ease, and so they know what to do. I have to admit . . . this one is still on our to-do list.
7. Where are we going to live? B and I have just been through the wringer on this. But whether we're retiring in place, or moving halfway across the country, we should remember that moving is not irrevocable, so we shouldn't freeze up at the prospect of making a decision. But we also have to be realistic. It's a lot of work to move, so we should think things through so we don't have to do it more than once or twice.
8. Do we have a plan? Retirement is an opportunity to choose where and how we want to live. Instead of drifting along, we should take advantage of all the options retirement provides. But remember, a plan is only wishful thinking, until we put it on paper. There are no right or wrong answers. The plan can change. It doesn't have to be long or complicated. But write it down . . . to make it real.
Did I say that retirement promises a life of ease? Who was I kidding?