3 decisions you need to make before you retire
Aare you thinking of retiring? If so, you will need to make some crucial financial decisions first to make sure you have enough money to live on and not put your future retirement security at risk.
In particular, there are three questions you absolutely must answer before you give your opinion and quit the world of work for good. Here is what they are.
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1. How much money will you withdraw from your retirement accounts
Two factors determine the retirement income your investment accounts will generate:
The withdrawal rate is the amount you withdraw from your account each year. A lower withdrawal rate reduces your income, but also reduces the likelihood that you will run out of cash before you die. A higher withdrawal rate could put you at risk of outliving your retirement savings, but it provides more income with a smaller nest egg.
You’ll need to think about your likely longevity and the risk you’re willing to take for running out of money when deciding on a withdrawal strategy that’s right for you. It’s best to make this decision early, as it can help you estimate the account balance you’ll need.
2. Where will you spend your retirement?
The retirement destination you choose will have a huge effect on your finances for several key reasons:
- The cost of living varies across the United States, and even in different parts of each state.
- Tax rules differ from state to state, with some states taxing social security benefits and others not imposing any income tax.
- Some places are more accessible on foot than others, allowing retirees to forgo the expenses associated with owning a vehicle
- The type of house or apartment you live in can affect your costs
If you are planning to live in an expensive city or want to continue to reside in your expensive family home in the suburb where you are dependent on a car, you will need a lot more money to retire comfortably than if you opt for life in a cheap neighborhood. with low taxes, it is practicable.
Of course, your decision on where you live has huge implications for your quality of life. You might want to stay close to family or friends, or live somewhere that’s a cultural hotspot, even if that means you’ll need a bigger nest egg. You will need to know this when developing your retirement plans so that you can base your financial goals on the costs you will incur in your preferred destination.
3. What you will do with your time
How you spend your days will affect the amount of money you need.
If you plan to work part time, it can supplement your income and you may need less savings. But if you intend to travel or indulge in expensive hobbies, additional savings will be crucial.
Having a plan for your retirement will also ensure that you don’t get bored or regret your decision to quit work.
By considering these three questions, you can be better prepared for your future retirement and make the right choices about whether you are truly ready to leave the world of work.
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