12 Things To Do Before You Retire
There are a lot of things to consider before you retire. What do you want to do? Live? How much money will you have coming in each month?
Let's start with defining what is retirement?
Retirement is when you stop working at your current job.
Some people retire with a lot of assets and some just live off social security. The idea of retirement is a fairly new trend among the working class. For most human history people worked until they died. But with the creation of modern medicine people are living longer than ever before. This is a reason that have pushed back the social security age.
Social security started in 1935.
Fast forward till today.
Most college graduates will have to work till they reach social security age, because of the cost of living and debt. Today, the average American household debt is $92,000. That means that a lot of people will have to work their entire lives to get out from under this debt and many never do.
I do not believe I will ever truly 'retire'. Where I choose to work will change and morph, but I think I will always do different things for money. I will have several different 'retirements'. Changes from one career to the next.
Retirement is choosing what you do with you time without having to worry about income.
1. Pay off your mortgage
If you own a home. I am a big fan of renting. But many retirees own homes. I love the people that are living in tiny homes or traveling the country in an RV.
You home is most likely your biggest liability. It is taking money away from you. If you can pay it off then you can set aside money for other things. Investing, travel, adventures. Not paying down a long term mortgage.
You will also have more options. If really needed money you could take out a home equity line of credit or sell the property at a profit.
If you still have a home and mortgage then you still have some liability that weigh you down.
2. Know and understand your numbers: assets v. liabilities
If you are going to retire or change careers it is a good idea to have a basic understanding of the financial system. Your personal financial numbers. but also the difference between good debt and bad debt. Assets and liabilities.
Accumulate things that increase in value or provide cash flow. Decrease things that take money away from you.
3. Reduce your expenses
Everyone has expenses.
In Texas every home has property tax. So even if you do not work, you will still owe property tax. Taxes are also increasing. Home values, city taxes generally increase over time. So you better make sure that you account for these increases in your budget.
But also try to reduce you expenses as much as possible when you are getting ready to retire. Be conservative in your estimates of how much you will need and how much you spend. It is probably a good idea to downsize your home or live in an apartment or something that is easily manageable.
My dream is to one day have solar panels on the house drive a Tesla to get rid of any gas bill and have the electric bill taken care of.
It can be tough to reduce expenses. It can feel like you are going backward in life. But really as Americans we have more stuff than we really need. It can be liberating to get rid of things that are no longer working for us.
4. Make sure your healthcare is taken care of
Housing and healthcare is what you will most likely spend the most amount of money on in your lifetime. There is no getting around needing to see a doctor at some point, we are all getting older and life is getting more complex each year.
Go ahead and plan for healthcare now.
Don't rely on Medicare.
I fully believe that both Medicare and Social Security are not going anywhere. People will always need these programs. But the government could easily cut the benefits. Medicare already does not cover all your needs. It covers the bare minimum and then you need to pitch in order to have quality care.
I recommend savings for healthcare in an HSA. It is basically an emergency fund for your healthcare needs and there are lots of tax benefits.
The best part is that you can invest the money for long term gains, before you ever have to withdraw it.
You are going to need healthcare go ahead and plan for it and make sure you are covered no matter what happens.
5. Stay motivated
Retirement just means that you are going to stop your current work and find something else to do that you enjoy more. In the past people were required to go to an office or work in the field. But not today. There are so many different jobs out there. You can all kinds of different things. At any age. Young or old.
You will probably live longer than you think. Especially if you are relatively young today. You have decades ahead of you. Use those years wisely. But do not be afraid to pivot. Stay active, keep your mind sharp.
Learn new skills.
Just because you retire does not mean the world stops. Keep giving yourself goals to achieve.
6. Have a personal payment plan
Either you have money coming in from another income sources, like stocks, social security, business income or you have savings.
Make sure you have a clear personal income plan.
What are your monthly expenses?
You want to know roughly how much money is going out each month and how much is coming. Retiring is not an excuse to go into debt.
7. Fund a robust emergency fund
Inflation is out of control. If you already had an emergency fund then you probably need to add more money into it. What lasted you a year before, will not last as long anymore.
I recommend that anyone have at least one year of cash in your account, not invested in the market or any other long term asset. Especially if you are going to stop working.
8. Create your essential documents
- Will & trust
- Medical power of attorney
- Financial power of attorney
If you have a few assets make sure that you also get that important documents together. This should really be done as soon as possible. Young people and old people. Because it spells out what you want to happen to your hard earned money.
You do not want to go through probate. Courts and lawyers cost money and take a long time. It is not designed to be quick and easy. It is designed to be long and hard.
If you have your essential documents filed and listing out what you want to happen to you in case of emergency you will make your life and your caregivers life much easier.
You do not want someone else guessing what they should do for you or deciding what to do with you that fits you into someone else's life.
Think about the possible scenarios, best and worst. And they lay out what you want to happen to you in those cases.
Make sure you get your documents notarized and someone besides yourself knows where they are located. Documents do you no good if no one knows where they are located.
9. Spell out your health wishes
Do you have a 'Do Not Resuscitate' document that spells out your wishes?
What kind of quality of life do you want if you cannot take care of yourself? I can honestly say spelling out your wishes is as much for yourself as for your loved ones. You are making your family members easier if the day ever comes that they need to take care of you.
People are busy and dealing with problems in their own life. The last thing you want is to become a burden on the people that you enjoy the most. You want the time you have to spend
10. Have deep conversations with the people around you so they know where you stand
I love to talk about money. But a lot of people do not. They want to avoid it.
Same for all of the other conversations. People do not want to talk about getting old. They do not want to hear bad news or think about the worst case scenario.
But just because you do not talk about it and try to avoid it does not mean you are going to escape it. And if you do not have those hard conversations today you will have a harder one later one. You will have to fight with people that think they know better than you.
I have found that those conversations are not as hard when you come from a calm place and explain to the other person why would like to have those conversations with them.
11. Do you need life insurance?
I do not have life insurance and I never plan to get life insurance.
If you have a spouse and young children then you probably need life insurance. Again, you want to make sure the people relying on you are taken care of.
You could also self insure. Basically save and invest so you have enough money to leave to your loved ones in case the worst happen.
Life insurance is not free. You have to pay for it in the hope that they will honor the contract you make. But rather investing in a life insurance company it might be a better idea to invest in yourself. Your investments and income. Grow both of those large enough and you will not need life insurance.
12. Don't make any big changes till after one year of retiring
Death, marriage, retirement. Any big life change can take a toll on someones emotions.
Don't make any big decisions when you are emotional. Give yourself at least a year before you move across the country, before you make any massive changes to your life.
Once you have given yourself some time to setting then make that big decision to change your life.