6 Things to Consider Before Retiring

After working long and hard for many years, the idea of retiring is very appealing.  However, you do not want to just decide to retire without proper planning. 

There are 6 important things to consider before retiring.

1. Volatility

If you are planning on retiring, the market volatility influences your retirement account when you have stocks or bonds.  The factors that impact volatility include the state of the economy, current events in the world, taxes, changes in the industry, political unrest, natural disasters and war.  Expanding your money out over different types of investments could help control the risk involved.  It is important to keep track of your portfolio, and make sure it is aligned within your goals.  Make sure your accounts are flexible, so you can make changes when needed.

2. Work-Retirement Tradeoff

When you think about retirement, you might wonder how many days that you would need to work to balance the days that you will be retired.  The experts on retirement advice say that for each year that you are employed, you should be able to produce two or three years of retirement.  In addition, if you take out your social security when you are eligible at the age of 62, the amount is reduced up to 35 percent.  Each year that you delay your social security benefits, the amount is increased by 7 to 8 percent.  The amount that you will receive is established by the 35 most earning years of your life.  By postponing your retirement and social security withdrawal, you will end up receiving a bigger check in the long run.

3. Investment Diversification

Retirement gold watch

What do you need to consider before retiring?

You cannot receive the best performance for your investment if you have your money in a single asset class.  When considering financial planning for retirement, it is a good idea if you diversify and spread your money out among different investments, so that your risk will be lower.  Every type of investment has its highs and lows; therefore, investing in different asset classes will allow you to have more consistent returns over time.  To diversify, you can invest across different asset classes, invest in more than one investment within each type or invest inside and outside of superannuation.

4. Value of the U.S. Dollar

Sometimes it can be difficult to know how to save for retirement when the value of the U.S. dollar fluctuates frequently.  However, it is something that you need to think about when retirement income planning.  Unfortunately, the American dollar seems to be declining.  If the United States is to increase its share of global trade, the dollar’s exchange rate will be forced to decline for a time.  This will increase the prices for imports in the country, but accelerate exports and domestic economic growth.  You also never know when interest rates are going to drastically increase because of foreign investors.

5. Life Longevity

Statistics show that the average life expectancy is 80 for women and 72 for men.  After you reach the age of 65, you will live on average for another 15 to 20 years.  Therefore, you need to plan appropriately for retirement.  If you plan on working past the age of 65, your retirement savings should extend over a shorter period of time.

6. High Medical Costs

Increasing health care costs could be a major factor to consider when retiring.  Obviously, the older you get, the more likely that you will need medical care.  Underestimating the medical costs during retirement is probably one of the biggest mistakes that you can make.  Therefore, when you are calculating the cost of your bills after you retire, make sure you over compensate for your medical cost.

When you want to plans retirement how to prepare for retirement, you need to consider these things so that you will be able to retire comfortably.  Preparing is the key to having the financial future that you dream of.

Comment below if you are nearing retirement or have considered these issues!  

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Published or updated April 9, 2013.

Comments

  1. Investorz' Blog says:

    Investment diversification doesn’t work.

  2. Bill Birnbaum says:

    Beyond the financial aspects of retirement, there are also the personal aspects of retirement. Each person nearing retirement should also consider the question, “What will I do after I finish breakfast and the newspaper?” Bill

    • You’re right Bill. I think many believe retirement is a time to relax but many find themselves dissatisfied. Knowing how you want to live your life in retirement will help you get a clear picture of what you need to save for.

  3. Jenna, Adaptu Community Manager says:

    What about the idea of not retiring?

    • How do you mean by not retiring Jenna? Certainly a person may be able to keep on working, and in some cases they may have to. Others may “retire” from the profession they’ve had for years and start something new, not retiring from all work, just from their lasting job.

      You have to ask yourself what retirement is for you.

  4. I am six years away from retirement (2nd time). Much of my income will be fixed (pension & social security) and I will have lifetime medical insurance. As I get closer to retirement, I expect to shift m investments to a dividend portfolio.

    • Having a retirement medical insurance plan is nice! So I’m thinking you are concerned with volatility in your portfolio? I think a lot of people in the last decade or so were hurt nearing retirement, getting caught retiring at the wrong part of an economic cycle. For many it wiped out a good part of their portfolio. It’s important to start planning your investments before you get to retirement age.

  5. Unlike what Investorz’ Blog said to start off the comments, I believe that diversification is rather important if you are to rely on investments to contribute to retirement. Obviously by making an investment you’re hoping it will be beneficial in the long run, so if everything you invest in is within the same asset class, you’re taking more of a risk in saying that the particular asset will absolutely go the way you intend for it to 15, 20, or 30 years down the road. Now we all know life doesn’t always go the way we plan, so without diversification in our investments, what are you to do if you find yourself with an investment that didn’t pan out as you had hoped? I sure hope you have something else up your sleeve, or at least plan on continuing your line of work for many years to come…

  6. High medical costs are one of my biggest concerns about retiring … those can easily spiral out of control.

    As far as the declining dollar, that has two effects — the one that you named in your post, and also the effect of making traveling in retirement much more expensive!

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