We’ve been posting a lot about life cycle transition here at DINKs finance. In response to an email from one of our readers, we wanted to talk about getting ready for retirement. We’re NOT referring to retirement planning, as in 10 years of saving up for retirement, rather we want to talk specifically about the transition into retirement. If you have parents who are nearing retirement age, or you are thinking about retiring yourself, here are some ideas to consider:
1) Taking Stock of The Situation: Retirement means big financial and social changes. You might want to take a bit of time to think about the financial and non-financial aspects of this transition. Financially speaking, you’ll probably need to come up with at least 65% (or way more) of the retirees pretax income. Non-financially speaking, many elderly become socially isolated after retirement. Everyone’s heard horror stories about seniors who die and nobody finds out for years. Please don’t neglect the non-financial aspects of the transition to retirement. For some elderly, its important to maintain physical and mental health by volunteering or joining social clubs.
2) Think About Insurance: Specifically, you might want to consider long term care or life insurance. Many senior citizens become disabled and require in home care or other expensive health care services. No kidding – three elderly members of my family have needed this. Also, during old age, the risk of accidental death increases greatly. If you don’t have life insurance, you or your family may not have the funds to carry on if someone dies. So, the main point here is that aging can accelerate health and mortality risks. You might consider insurance to cover well ahead of time, e.g. during the transition into retirement.
3) Brush Up On Your IRS Regs: A lot of seniors draw on their pension and retirement accounts. The IRS has a ton of byzantine regulations that govern when you can access these accounts and how much you can take. Rather then explain them here, I’ll just say you should probably read up on the IRS’s rules regarding the type of retirement accounts you’re dealing with. These rules are constantly changing, but you can get a pretty good discussion at yahoo finance or the motley fool.