Whether you’re approaching retirement or already retired, you know there’s always room for improvement — room to retire better.
To get you started on your retirement improvement plan, here’s a nine-step checklist to review and consider implementing. You may already be familiar with many of the items on the list, but now is the time to button them all up, leaving no doubt you’re on your way to a better retirement.
1. Take Inventory
What’s the old saying? “The camera doesn’t lie.” Well, if your goal is to retire better, you need to take a financial selfie, revealing how you look financially right now.
What don’t you like about your financial picture? Maybe it’s the cracked and curling tiles on your 40-year-old roof that needs replacing? Or maybe it’s the sight of the RV permanently parked in your driveway that you’re still making payments on? Your underfunded 401 (k) account could also use a little beefing up.
Then again, you may like what you see. You may own a home that’s paid for and your rare comic book collection keeps going up in value.
Jot down everything you own and owe to get a snapshot of your financial condition. Remember, before you can manage something, you must be able to see it and measure it. Aim for a big-picture view rather than trying to price everything down to the penny. Just this start alone will get you thinking about what you really need to do to build a better retirement.
2. Assess Your Health
You need to know how long you’re going to be around to enjoy your retirement. That’s not so easy because medicine, despite all its wonderful breakthroughs, is still an inexact science. Patients given a prognosis of six months to live can still be going strong a decade later. On one hand, conditions like obesity, diabetes, and hypertension may decrease the likelihood of becoming a centenarian. On the other, if you’re in great health and your family history is filled with active nonagenarians and centenarians, your personal financial planning should reflect this anticipated longevity.
Just remember, your health status directly impacts your financial well-being, influencing everything from when you decide to take Social Security to how much life insurance you should carry.
3. Calculate When to Take Social Security
Continuing the theme above, the decision of when to take Social Security is highly dependent on your circumstances. For example, if your parents are alive in their 90s and your grandparents lived well into their 90s, you probably should think about delaying your Social Security benefit for as long as possible. The longer you wait to take Social Security up to age 70, the larger your benefit will be — about 8% more each year.1 Try to get that kind of return from your local bank.
4. Calculate Your Medicare Costs
Yes, there is a cost to Medicare. Many people think that once they turn 65, they’re on easy street. Not so. Once you’re 65, the government will provide for much of your hospital (Part A) and medical (Part B) expenses, but not all. There are significant gaps in coverage for which you are responsible.
For 2021, Medicare enrollees must contribute a minimum of $148.50 for their Part B coverage. The premium may be more if your earnings are higher. That’s not all. Part B provides only 80% of the cost of your doctors’ visits.
To make up that 20%, you could self-insure (pay directly out of your own pocket) or you could purchase additional insurance coverage, in the form of a Medicare Advantage Plan or Medicare Supplement Plan.
Medicare Advantage bundles Medicare Parts A and B and often provides additional services, such as prescription drug coverage, often referred to as Part D. Medicare Advantage acts much like an HMO with its own network of doctors, hospitals, and other healthcare providers to help keep down medical costs.
In contrast, a Medicare Supplement Plan generally lets you see, without a referral, any U.S. doctor who accepts Medicare patients. You don’t have to worry about whether your doctor or specialist is in network. You must purchase prescription coverage separately, however.
Generally, Supplement plans have higher premiums but smaller co-pays than Advantage plans. In fact, some Advantage plans have $0 premiums, but they may have other expenses, such as copayments, coinsurance, and deductibles.
Again, your financial decision may hinge on your health condition. Ask yourself, if you get a referral to see a top specialist but the expert isn’t your network, is that acceptable to you? On the other hand, if you are generally healthy without any pre-existing conditions that you know of, does it make sense to shoulder the additional cost of a more expensive Supplement plan?
5. Decide If You Need Life Insurance
The idea of insurance is like building a moat around whatever you’re trying to protect — things like your home, car, or collection of Fabergé eggs. Ironically, life insurance is less about protecting you than providing a financial circle of defense around loved ones who must carry on in your absence. For example, will your spouse — reduced to living on one Social Security check upon your death — still be able to cover the mortgage, property taxes, and other living and household expenses? Life insurance can often be that vital cash lifeline your survivors need when there is a sudden or drastic drop in income.
Generally, life insurance falls into two categories: term insurance and whole life insurance. Term insurance, which can be purchased separately, or jointly if married, provides coverage for a specific term, such as 10 or 20 years. When the policy expires, you must buy another term and pay higher premiums if you still wish to have life insurance. It has no cash value unless the insured dies during the term. You might decide a term policy is worth the annual expense until you no longer have a mortgage on your home or until a pension or your Social Security kicks in.
Whole life insurance, as its name implies, is designed to cover your entire life, not just a portion of it. The policy stays in effect (you can’t outlive it) unless you stop paying your premiums or cancel your policy. The initial cost of premiums, which never changes, is higher than it is for term insurance because it offers this lifelong coverage. A whole life policy is really part insurance and part investment because part of your premium goes toward building cash value that you can borrow against.
If you’re still working, you may be able to take advantage of your company’s group life insurance policy, often offered at little or no cost. Coverage amounts tend to be low, however, often ranging from $25,000 to a multiple of your annual salary. Coverage is generally guaranteed, which means you don’t need to take a medical exam or answer health questions to qualify.
Life insurance can be complicated, so prepare to sit down with a financial planner to discuss your need for coverage. Together, you may find you do not need life insurance if you have other significant assets that your dependents can fall back on.
6. Reinforce Your Retirement with a Reverse Mortgage Line of Credit
While you’re still in moat-building mode, also consider a reverse mortgage line of credit. Because it cannot be withdrawn, frozen, or reduced, as long as you honor your loan terms, such as maintaining your home and keeping up your property taxes and homeowners insurance, it can serve as another vital cash lifeline to cover large medical bills or make up the income from underperforming investments or the loss of a full- or part-time job.
Unlike a traditional home equity line of credit, any portion of the reverse mortgage line of credit you don’t use continues to grow. Consequently, many savvy reverse mortgage borrowers leave their line untouched, so it stands ready to serve as a large rainy-day fund to tap in times of financial emergency.
To qualify for a reverse mortgage line of credit or any of the other reverse mortgage payout options, you must:
- Be 62 or older
- Own and live in your home as your primary residence
- Have sufficient home equity (from having no mortgage or a low mortgage balance)
As for loan repayment, you can pay as much or as little as you like, according to your budget and timetable, or you can wait to pay off the entire loan (principal, interest, and insurance) when you permanently leave the home. To find out if a reverse mortgage loan is right for you, click here.
7. Keep Working
One of the best retirement plans is to continue working. This step may sound counterintuitive, but many older Americans are doing just that. According to AAG’s Post-2020 Retirement Survey, 18% of seniors answered that they plan to retire past age 70, and 12% said they do not plan to ever stop working.2
Whether you love what you do or just need to work out of necessity, collecting a steady paycheck can help make up for an earlier lack of retirement savings. Working can also boost your Social Security benefit because Social Security payouts are based on your highest-earning 35 years. So, the salary you earn this year could replace a year you didn’t work or earned very little.
By continuing to work, you may be able to contribute to your company-sponsored retirement you underfunded or didn’t fund at all in the past. Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, effective Jan. 1, 2020, you can now contribute to a traditional or Roth 401(k) at any age. Under the same law, required minimum distributions (RMDs) were pushed back from 70 ½ to 72.3
If you’re 50 or older, you are also eligible to add a catchup provision of $6,500 to workplace retirement plans like 401(k)s, 403(b)s, most 457s, and the government’s Thrift Savings Plan (TSP). When combined with the current maximum contribution of $19,500 in 2021, you could bring your total contribution up to $26,000 this year.
Lastly, people who work after retirement often remain more active and socially connected, which can mean better overall health and fewer medical issues.
8. Sell Stuff
Americans accumulate all kinds of stuff, ranging from U.S. presidential button paraphernalia to collections of Chinese cups carved from rhinoceros’ horns. Beyond their sentimental value, they may also have real financial value. Using the “you can’t take it with you” approach to your retirement, either make plans to pass down your heirlooms to family and friends or sell them.
Holding an estate sale while you are still lord of your manor can bring in valuable income to help you cover many of the financial needs discussed above. You could conduct the sale on your own, or if you have an overwhelming amount of stuff, you might want to call in a pro.
If you outsource this task, don’t sign any contract before discussing what each company charges for its services. Does it charge a percentage of gross sales, a flat rate, a flat rate plus a percentage of sales, or a minimum or a percentage of sales, whichever is greater? Also, ask exactly what services you’re getting for your money. To help you decide which estate sale company to select, pick out a few items for each firm to price or appraise. Compare their quotes and see if they match your expectations.
9. Pump up Your Emergency Fund
Your definition or interpretation of what it means to retire better will likely be different from your fellow Americans. But if retiring better means having more peace of mind that you can face whatever life throws at you, you’ll feel more confident about your future if you have built up a substantial emergency fund.
Start adding to it by squirreling away unexpected sources of income, like a stimulus check, tax return, inheritance, or the cash you earned from selling some of your old power tools.
Don’t overlook selling your own services. The U.S. is a service-driven economy, where you can turn almost any skill, passion, or pastime into a paying gig, such as tutoring, bookkeeping, baking, delivery, dog walking, notary, and conducting surveys, to name just a few.
Another emergency fund-builder is to rent what you own: a room in your home, your car, your RV, even your pool. The website Swimply functions like the aquatic equivalent of Airbnb or HomeAway for pools. It offers a digital marketplace for homeowners to rent out their pool by the hour.4
So, inventory all your assets and skills and see which ones you can most easily convert to cash that you can add to your emergency fund.
Why isn’t there a No. 10 on the list? That is entirely up to you, because no matter what list you read or try to implement, there will always be more you can do. There will always be room for improvement.
Just know that every bit of progress you make working your unique plan is another important step toward helping you achieve the retirement you always envisioned.