Retirement Saving

10 Must-Do Steps to Do Now to Prepare for Retirement

Written by Aliyyah Camp

Whether retirement for you is decades away or just a few years away, there are things you can do now to have a more successful retirement. It starts with knowing what you want your ideal retirement to look like. From there, it’s all about effective planning. Here are 10 must-do steps to do now to prepare for retirement:

  1. Define Your Ideal Retirement

In defining your ideal retirement, there are a few key things to consider. Top of the list is at what age you’d like to retire. Do you want to retire early and live off your personal savings before tapping into your retirement benefits? Do you want to do a phased retirement in which you work part-time before ultimately not working at all? Or do you want to go the traditional route and retire around age 65?

Another thing to consider is where you want to live. Do you have children that are willing to have you move in with them? Do you want to live in a retirement community? Or do you want to stay in your current home?

  1. Eliminate Debt

Although eliminating debt should always be a financial goal on your list, it becomes more and more important as you near retirement. This is because bringing debt into retirement can reduce your standard of living. A smart thing to do is to only take on debt you know you can afford to pay off before you retire.

  1. Save Money in an Employer-sponsored Retirement Plan

If your employer offers a retirement plan, this is the first place you should look at saving money for retirement. Not only do 401(k)’s/403(b)’s offer tax savings, they generally make saving easier because the money goes directly from your paycheck into the retirement plan account. Some employers even offer matching funds. If your employer offers matching funds based on how much you contribute, make sure you contribute how much is needed to get the full match.

  1. Save Money in an Individual Retirement Account

The next step is to save money in an individual retirement account, such as an IRA or Roth IRA. Both accounts are similar, but there are some notable differences. Contributions to an IRA are tax-deductible, saving you money now. The withdrawals in retirement are taxed. Contributions to a Roth IRA aren’t tax-deductible. The withdrawals in retirement are tax-free, saving you money in the future. Both accounts have contribution limits set by the IRS. Roth IRA’s also have income limits for eligibility to contribute.

  1. Buy a Home You Can Afford

On the note of being debt-free, not having a mortgage payment you’re responsible for in retirement makes a huge difference. Of course, you don’t want to buy a home until you’ve done your due diligence such as finding a city you’ll live in for more than five years and saving for a down payment. Once you’ve done those things, consider buying a home you can afford. If you purchase early enough, you can realistically be mortgage-free in retirement.

  1. Plan Your Estate

It’s important to draw up a will while you’re still well. This ensures that your assets go to the proper beneficiaries. Otherwise, your estate will be divided in probate court and may not be handled how you would’ve liked. Another thing to consider is gifting your money. This may be ideal if you have a large estate and want to make sure your money stays in the family. You can gift $14,000 per person per year without any tax liability.

  1. Learn About Government Benefits in Retirement

Social Security and Medicare are both government benefits that help Americans in their retirement years. Social Security provides monthly monetary assistance while Medicare provides health insurance. Generally speaking, you can begin receiving these benefits at age 65. There are instances in which you can begin receiving benefits as early as age 62. But the benefits will be reduced to cover the longer period of time over which the benefits are paid. You can learn more about these government retirement benefits on the Social Security Administration website.

  1. Review Your Health Insurance Options

Medicare isn’t the only health insurance option in retirement. If your employer offers COBRA for temporary continuation of benefits, you could have up to 18 additional months of health insurance coverage after you end your employment. Some people may find this useful since your employer’s health insurance plan is likely more comprehensive than Medicare’s. In some instances, you can choose to enroll in a marketplace plan instead of Medicare. Some retirees do this because they’d have to pay a premium for Medicare anyway.

  1. Create a Retirement Budget

Creating a retirement budget is similar to creating a regular budget. The main difference is that you’re now accounting for retirement income (from investment accounts, Social Security, personal savings, etc.) rather than a paycheck. Your expenses may also look a lot different. Once you know how much will be coming in each month, you’ll want to list your fixed expenses. From there, you’ll want to list your variable expenses including things like spending on dining out or travel. Make sure you include healthcare costs and discretionary spending in your budget.

  1. Consider the Emotional Impact of Retirement

Something that shouldn’t be overlooked when it comes to preparing for retirement is the emotional impact it can have. The retirement lifestyle comes with a lot of lifestyle changes. Being prepared emotionally for these changes is just as important as being prepared financially.

One thing to consider is your marriage, if you’re married. You likely spent a large portion of your time away from your spouse due to working a day job. In retirement, how will you handle spending every day at home with your spouse? Another thing to consider is your career. For some, their careers define who they are. What will you do to get that same fulfillment once you’re not working anymore?

Final Thoughts

Retirement is a major milestone in life. Being prepared for retirement is very important, and the preparation starts now. When you start doing things like eliminating debt and saving money in retirement accounts earlier on in life, you’ll put yourself in a better place financially for retirement. Preparing for retirement isn’t strictly financial, however. You’ll also want to prepare yourself emotionally for the big transition.

About the author

Aliyyah Camp

Aliyyah Camp is a personal finance writer who specializes in writing about ways to save money, make money, build credit, and invest. She has a Bachelor's Degree in Communication from the University of Pennsylvania.

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