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What you should know before choosing a retirement option

Karen Gibbs

Karen, my employer is offering early retirement packages.  What questions should I consider before taking the retirement option?

- So Close to 65, Annapolis


Lady with Gray hair

Dear So Close, give yourself a gold star for thinking ahead!  Many people are so focused on their vision of retirement that they overlook some basic steps to take before retiring.

What is your vision of retirement?  How do you plan to spend your time?  Do you plan to work part-time or start your own business?  Do you plan to travel and/or spend time with the grandchildren?

Have you estimated how much you may spend in your retirement?  This would be my first step.  Create a budget detailing your monthly expenses, recurring costs such as utilities, food, gas, etc.  Then calculate how much you may want to spend monthly on travel, the grandchildren, dining out and other entertainment.  Be generous with these estimates as it is better to have more money at the end of the month than more month at the end of your money.

Do you have any debt that will carry over into retirement such as a mortgage or credit card debt?  Most financial planners recommend paying off your debt before retiring, or at lease whittling it down to a manageable amount.

Do you feel you have saved enough to comfortably retire?  Do you have an emergency fund for the unexpected events that are bound to pop up?  You can play “catch-up” now by increasing your 401(k) or IRA contributions.

Have you estimated what your monthly retirement income might be?  Have you gone to Social Security's Retirement Estimator to estimate how much social security you will collect per month?

Will you have any other income from other pensions or employer savings plans?  Will you take early retirement at 62 or wait until your full retirement age?  Can you afford to hold off until 70 when your social security benefits will be maximized?  Be aware that if you plan to take early retirement, you will be limited as to how much income you can earn in retirement.  For 2016, the earned income limit is $15,720. Your benefits will be reduced by $1 for every $2 you earn over that limit.

Have you talked with a fee-based financial planner?  Having a written financial plan and a roadmap detailing how to reach that goal is of enormous help.  The proper mix of assets in your retirement portfolio will help you achieve the maximum return for minimal risk.  Your financial planner can assist in structuring your investments as well as determining the estimated impact of taxes and inflation on your nest egg and income.

Is downsizing in your retirement vision?  Have you explored the sale of your home or the cost of renting?  Do you have estate documents in order such as a will, power of attorney, and life insurance with updated beneficiaries?  

Once you’ve answered these questions, you should go to your human resources department and discuss your retirement benefits options.  You may be offered a lump sum instead of receiving a monthly check.  Circle back to your financial planner once you’ve talked to your benefits department and see if the early retirement offer is viable for you.

Best of luck whatever you decide!


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