- The definition and timing of retirement is wide open and driven primarily by your lifestyle choices and financial security.
- Planning for retirement involves a complete reassessment of future income sources and expenses.
- The sooner you start preparing, the easier it will be to get your personal, professional and financial life ready for the transition.
Baby Boomers have redefined what it means to retire, viewing it less as moving from work and more as moving into a new life phase that promises to be equally or even more fulfilling. Today’s retirees are also rethinking the whole idea of “retirement age.” Some are entering this phase in their 50s while others are continuing in their careers well into their 70s. These decisions are often driven by a combination of lifestyle choices and financial necessities.
As soon as you determine what your ideal retirement looks like and when you’d like to start living it, you need to begin preparing. It’s never too early to get your plans in place, but try to give yourself at least a few years to dot the I’s.
Here are a few preparations you might consider when your retirement date is still about seven to 10 years off:
- Adjust your investment allocations — You may want to shift a percentage of your 403(b) retirement plan investments out of higher-risk securities like stocks and into more stable investments like bonds and money market funds. This lowers the risk that your investments might lose value just when you need to start withdrawing funds to supplement your income. Remember, retirement may last 20-30 years, so you need to maintain some stocks in your mix for long-term growth potential.
- Reassess insurance coverage — If your kids are grown and your mortgage is close to being paid off, you may no longer need life insurance. But consider buying long-term care insurance. A single year of nursing home care may cost more than 30 years of long-term care insurance premiums, and several years of care could deplete your savings and put a financial burden on family members. The longer you wait to buy this coverage, the more it will cost, so put some basic protection in place in your 50s, if possible.
- Create a retirement budget — Project your retirement income from pensions, Social Security, and personal savings. Then estimate how your expenses may change from what they are right now based on the retirement lifestyle you want to lead. Run some numbers on our retirement calculator to see how much you need to withdraw from your retirement savings each year so you know how long your money may last. If you’re falling short of your goals, make lifestyle adjustments to reduce costs. Pay down debts to reduce or eliminate interest expenses. If you own a home, consider a home equity line of credit (HELOC) to give yourself a tax-deductible method of borrowing money for short-term needs. It’s easier to get a HELOC while you still have a job and a salary. Build up a cash emergency fund for more security.
- Attend financial workshops in your school district — Special workshops offered by your local association or financial service providers can provide tips and guidance on a variety of financial topics, including first-time home buying, saving for college and retirement planning, among others. Many of these workshops are free.
- Get professional help — You probably don’t consider yourself a money expert with deep knowledge of investing and financial planning, so paying for some professional advice can be viewed as an investment in your future financial security.
And when retirement is right around the corner, say, two to three years away, consider these suggestions:
- Research your teacher benefits — Understand how your preferred retirement age might affect benefits like pension payouts, health care, and accrued vacation time. Take advantage of your NEA benefits and learn how the NEA Medicare Supplement Program can help. Medicare doesn’t kick in until age 65, so if you’re retiring at an earlier age, figure out how you’ll cover the gap in health coverage.
- Get paperwork in order — Discuss options and requirements with your school districts’ retirement certification specialist or employee benefits specialist. Be aware of submission deadlines and keep copies of everything.
- Automate your finances — Set up automatic deposits for pension payouts and Social Security and automatic bill payments to ensure regular expenses are paid on time and avoid late fees.
The bottom line
In your 30s, “planning for retirement” mostly means supplementing estimated pension and Social Security benefits with personal savings, such as a 403(b) plan, to give yourself more future financial security. In your 50s and 60s, the term takes on a whole new level of complexity. If you start the process early enough, you’ll make better decisions and ensure a smoother transition to retirement.