Earn 2.02% APY* on Wellby Savings Plus Jumbo Deposits *Learn More

Earn 4.33% APY* on a 27-month Certificate and Make Your Savings Soar Even More! *Learn More

Wellby Financial
retirement paperwork and a calculator used to plan for your retirement

Getting Close to Retirement? Here's How to Prepare Financially

May 26, 2022

By Travis Sink

Retiring is both an exciting and an overwhelming experience. More people are retiring later in their careers or have started saving for retirement sooner. This has helped many work toward a more secure retirement by giving them the opportunity to gradually build their savings through retirement plans and other investments.

Moving from a constant paycheck to relying on different sources of income can lead to some anxiety. This change could inhibit your retirement dreams, whether you’re dreaming of traveling, spending more time enjoying hobbies, or visiting family and friends. This is why having a plan in place and understanding your financial standing is critical, especially as you approach retirement. To help you financially prepare and reduce your worries t, here's a checklist of a few key items you should consider.

Set a Retirement Budget

Create a retirement budgetThe general rule of thumb for a retirement budget is at least 70% to 80% of your pre-retirement income. Knowing how much you require to live comfortably through retirement, can help alleviate some of the stress. Utilizing a budget calculator can help you determine how much you’ll need each month to enjoy the retirement you want.

As you enter this next phase in your life, your priorities will shift, such as possibly relocating to a place that fits your lifestyle more or travel away from home more often. Further, as we age, factors such as health care become even more important, and often more expensive. Therefore, your retirement budget will need to take into account future medical costs and other expected expenses. Keep in mind you should also account for expenses that will decrease or be eliminated once you're retired, such as commuting expenses or dry cleaning your clothes for the office.

Your sources of income will also change as you leave the workforce. New income can include stock dividends, social security, rental income, IRAs, or your 401(k). Once you enter retirement, make sure to keep reviewing your budget regularly, depending on your lifestyle changes and inflation, for better financial security.

Adjust Your Investment Portfolio

Iadjust your retirement portfolioIt's normal to feel a little stressed about whether your retirement income will sustain you and your family when you stop actively working. If you've always committed to maxing out your 401(k) or IRA, you're lucky to have a substantial nest egg to live the life you want. However, even with modest savings contributions over the years, it's essential to achieve both capital preservation and growth of income.

It's also prudent to avoid overspending in retirement by spreading out your Required Minimum Distributions (RMDs) from your retirement accounts. It's generally recommended that you withdraw 3-5% of your accumulated retirement savings in the first year of retiring. As you move forward, you can keep readjusting the withdrawals, given that your expenses and lifestyle will change. However, over-relying on a safe withdrawal rate can be risky due to market volatility and potential low yields from stocks and bonds.

With such uncertainty, it's vital to rebalance your retirement portfolio to integrate a proper mix of conservative assets where most prefer to hold more bonds and cash assets and fewer stocks to achieve long-term sustainability for the next three decades or so.

Additionally, it’s wise to have some cash on hand, such as an emergency fund to cover living expenses for at least 12 to 24 months to avoid selling assets that will bring better returns in the future. Experts also advise you to keep rebalancing your asset allocation once every year to help maintain the withdrawals you make. For example, if you find your portfolio is heavily allocated to stocks, you can sell them in exchange for less risky bonds when the value goes up.

Decide When to Claim Social Security Benefits

understand your social security benefitsRetirees can start receiving retirement benefits as soon as they turn age 62. However, your benefits reduce up to 30% if you don't wait to reach your Full Retirement Age (FRA) which is usually 66 or 67. Another downside is that at 62, your spouse will receive a 35% reduction in benefits. However, an early withdrawal is justifiable if you need the income to sustain your needs.

If you have other income sources, it's ideal to wait past your Full Retirement Age (FRA) until age 70 to gain delayed retirement credits. This way, in just eight years, your retirement budget will get a substantial boost to carry on with your life with fewer financial worries.

Take this example: John decides to collect his monthly benefits of 4,000 at age 62 rather than wait for his FRA at 67. This will cause his benefit to reduce by 30% meaning he'll only receive $2,800 ($4,000- ($4,000 x 0.3)). If he instead waits until age 70, he stands to gain up to 124% (8% x 3) of his full benefit, which will translate to $4,960.

Understanding Medicare

Taking advantage of Medicare will also help you manage your budget into retirement. The program helps reduce your medical care costs, especially if an individual is no longer covered by workplace health insurance.

Medicare was designed to offer health insurance coverage for a person aged 65 and older, plus earlier eligibility if they have an illness or disability. Planning for your healthcare will help you in the future when you need to pay for specialized treatment or hospice care, which can be very costly. There are 4 parts (A, B, C, & D) under the Medicare program; Part A (inpatient hospital care), Part B (outpatient care), Part C (private healthcare insurance plan), and Part D (drug coverage).

While Medicare costs have increased in 2022, such as Part B premiums rising from $148.50 to $170.10, Medicare might be the next step to consider if you're soon turning 65 and want to avoid draining your finances from rising medical costs. Visit medicare.gov for more information about the sign-up process, coverage plans, and available care providers.

Stay on Top of Estate Planning

stay up to date on your estate planningEvery retiree needs to seriously consider how they can safeguard their income and assets against life's surprises. This is why life insurance and proper estate planning are so important to effectively navigate through retirement.

Life insurance protects your family from financial struggles upon passing. It also helps meet the costs of treating terminal or chronic illnesses, including final expenses. If you don't currently have an active plan, now would be a good time to start reviewing your options, if a new policy fits into your retirement budget. It's also equally important to review the current policy you hold, especially if you've had it for years. Life events such as marriage, having children, career change, and added financial responsibilities often prompt people to adjust coverage.

Similarly, your estate plan needs to change with the times and your situation. Working with a qualified professional, such as an attorney or financial advisor, ensures your estate is in good order for you and your beneficiaries.

The Bottom Line

While everyone's situation is different, there is a common fear pertaining to retirement funds. However, taking charge of your future, starting from evaluating your income and financial needs and setting important financial goals, can help alleviate some of your worries. Whether you started saving for retirement early or later in life, determining and understanding your retirement income and budget can help you have a more relaxing and enjoyable retirement.

To ensure you don't miss out on the essential parts of your retirement plan, we recommend that you work with someone who has your best interests and goals in mind, like a financial advisor, or by scheduling an appointment with a trusted Wellby Investment Services financial consultant.

Become a Member Today!

With low or no fees, low initial deposits, and no minimum balance required, we offer unique banking solutions designed to fit your needs and financial goals.

Save Easily
Budget Successfully
Plan Confidently
About the Author

Travis Sink is an Ohio native who flew south for the winter in 2014 and never went back. An avid consumer of all things from the tech and financial industries by day, he spends his evenings relaxing with his wife and dogs either reading, playing sports for local rec-leagues, or learning how not to burn dinner again.

Social Icon

Related articles you might like

December 5, 2022 | by Travis Sink

8 Tips For Smarter And Safer Online Shopping During The Holidays

November 23, 2022 | by Travis Sink

How to Get Ahead of Spending & Budgeting For the Holidays

July 12, 2022 | by Team Wellby

Preparing Your Home & Finances For Hurricane Season