You have finally reached retirement age! Congratulations! Now is the time to take some smart financial steps so you can relax and enjoy your new found freedom!
Your financial checklist of things to do when you retire
Those first few days after retirement can be a lot more complicated than you thought. You had the impression that the day you returned the keys to the office would be filled with carefree joy, but it is crucial to have a financial plan to ensure that your later years will be as pleasant as you always wanted them to be.
Celebrate!
Of course, you deserve to celebrate a little. Maybe throw a party for family and friends and go on vacation for a week or two to do whatever you want.
But when you’re done with all that, here are some things to do, if you haven’t already done them before your last day of work.
Check your pension and make sure you have all your documents in order
Your fixed paychecks are over, so your main source of income will be your pension payment every month. Make sure you know exactly how much you are going to receive each month because that is it and that you have all those important documents well organized. Any lump sums you received upon retirement should be saved and invested and not just thrown into checking because they tend to disappear faster than you can imagine! More on how to invest this money later.
Find out about all those gifts and discounts
Depending on the country you live in, there can be a lot of free things or discounts that you can take advantage of. These can include public transportation, movie tickets, restaurant meals, museum tickets, etc. Always ask before paying anywhere and always have your ID with you so you can prove your age. Find out about the specific days and times in which these discounts are applied and make the most of them!
Check your tax situation
In most countries, pensions are taxable income. Talk to a good tax advisor and understand how much tax you will have to pay so you don’t get a nasty surprise at the end of the tax year.
Check your health insurance and social security coverage
Unfortunately, this is going to become more and more important as you get older. If you have a good public health system in your country, this might be enough, but if you need private health insurance, get a good deal now while you’re still healthy and don’t wait until you run into trouble when it will cost you a lot more.
mortgage
Hopefully, you’ve paid off your mortgage a long time ago, but if you still have a mortgage to pay every month, there’s a temptation to pay it off in full when you retire. However, mortgages are generally the cheapest loan you have and the interest you pay is likely deductible from your pension income, so it might be an idea to keep your mortgage to reduce your taxes. Check all of this with your tax advisor before doing anything rash.
Make a budget
If you’ve received a lump sum, it’s easy to think you’re suddenly rich, but that money will have to last you (hopefully) for a long time. Make a budget based on your regular monthly pension income and even try to save a little of that each month so that you can afford a vacation once in a while. Do not use your savings for your monthly expenses. Keep in mind that now that you have more free time, your monthly expenses may go up instead of down. It’s easy to get into a rut of going out more, eating more, and generally spending more, so make a budget and stick to it.
investment
This is a topic that is talked about a lot. Some people wear themselves out by investing in low-risk bonds that can pay 3-4% per year before taxes, or dividend-oriented stocks that can pay about the same. Other people say that just because you’re retired doesn’t mean you shouldn’t invest in growth stocks that may not pay dividends but could go up very well. After all, the retirement horizon for most people could be 20 to 30 years or more. This is a personal decision, but it might be an idea to have a mix of investments. Owning a rental property may also be an idea, although as you get older you may not have the energy or appetite for all the management that this entails.
Do not give large amounts of money to your children.
If you are in your sixties, chances are your children are going through the most stressful part of their lives. They probably have a big mortgage, young children, their careers are just starting out, and they’re probably strapped for money. You may have a good amount of money in the bank and you may be tempted to be generous. They might even ask you for money. Be very careful in this aspect because when you fall short, are they really going to help you? The biggest favor you can do them is to be financially independent so that you are not dependent on them in the future.
Make your home retirement-friendly
Think ahead and consider downsizing to save on your monthly expenses. Maybe move to a house with fewer stairs or to an area where you don’t need a car. There’s no obligation to keep running the large family home during the few times when everyone comes to stay and where you’re still packing up your kids’ junk that’s been sitting in the attic for the last 20 years. If you’re going to be traveling more, it’s probably best to live in an apartment that will be safer while you’re away and costs will be lower and more predictable each month.
start a small business
If you’re in good health, there’s no reason you can’t start your own small business. This could be a lot of fun, it will keep you busy and it will generate some extra income that will always come in handy.