Developing a solid retirement plan is hard work, so congratulations if you've put together the elements of a plan. Surveys show that most Americans do not have a well-conceived idea of their retirement years: when they will retire, how they will afford it, how they will achieve life goals, and the like.
Instead, we all too often fall into accidental retirements. It may be a health problem that takes us there, dramatically affecting our activities, including pulling in a paycheck. Or we may lose a job and find ourselves effectively forced into retirement. Even if we're not exposed to these problems, they may befall a spouse, parent, or other loved one, making our own retirement the best solution to a bad situation.
[In Pictures: 10 Steps to Fine-Tune Your Retirement Plan.]
Here are the major elements of a tune-up for your retirement plan. You should review these items regularly as your situation changes, but it's a good idea to formally update your plan at least annually, and more often as your retirement date nears. The two primary elements of your retirement that need attention are your money and your home.
Retirement accounts and savings. The proper care and feeding of your nest egg is essential. How are your savings invested? How do your returns compare with market averages for the types of assets you own? Do you need to rebalance your portfolio to reflect changes in your investment values? If you still have an active 401(k) plan, are you maximizing your employer's match? Review plan choices and make sure your investments are still the best for you. If you have active IRAs, are you still contributing? Consider a Roth IRA. Contributions rules have been eased, and if you have post-tax dollars to invest, putting them in a Roth may be your best option. Run your investment totals and planned contributions through some online retirement calculators. Are you doing better or worse than you were a year ago?
Social Security. The decision about when to claim Social Security benefits may be the single most important call you make about your retirement. You can elect to begin taking benefits when you turn 62, or wait up to eight more years. Each year you wait, benefits increase by about 8 percent a year. When you reach your full retirement age (66 or 67), you also enjoy more favorable tax treatment on earned income. (And if the notion of a "full retirement age" is alien to you, visit the Social Security website to learn more.) If you're married, you should also decide whether it makes sense for one of you to begin receiving spousal benefits. It's possible to receive these benefits and then claim your own higher benefit at a later age.
Spending and budgets. Developing your retirement spending plan should begin several years before you actually retire. Look at the major areas in which you spend money: mortgage or rent, auto expenses, food, utilities, communications (TV, Internet, and phones), insurance, and entertainment. If you are still paying off a mortgage or one or more cars, try to eliminate these debts before you retire. Review your insurance coverages and decide if you can save money by changing policy terms or even insurers. Shopping around for current insurance rates should be an annual exercise to avoid getting locked into higher-cost policies. That's also true for communications expenses, which have grown to become big-budget items.
Health insurance. Out-of-pocket healthcare costs are the big wild card of retirement. Even with Medicare and a solid supplemental policy, expenses can mount. Medicare does not cover long-term care. Does long-term care insurance make sense? Most people answer this question by ignoring it or convincing themselves they will be the 1 in 3 older Americans who will not need extended professional care in their later lives. Many people try to preserve the equity in their home as an emergency fund for later-life health surprises. Does this make sense for you?
Is it time to downsize? Moving to a smaller home is an important consideration in retirement planning. Financially and physically, taking care of a larger home can be taxing. Many people become trapped by their possessions as they get older, not wanting to part with memories and family items. Be realistic. Will your children want your keepsakes?
Where do you want to live? Most older people want to stay right where they are. This preference has even been given a name: aging in place. Does that describe you? What about moving to a different part of the country? Retirement can be a great motivator for some lifestyle changes. There also can be big issues relating to the climate, living costs, and family considerations as well. U.S. News' Best Places to Retire has tools to help make the move that's right for you.
Are your home and neighborhood senior friendly? The two easiest ways to answer this question are to imagine yourself in a wheelchair or unable to drive a car. How would you navigate your home—bathroom, kitchen, bedroom, laundry, and stairs? Could you even enter your home by yourself? Could you walk or use your wheelchair to shop and run other errands near your home? The time to add senior-friendly features to your home is before you need them. Great neighborhoods may look a lot different without a car.